1. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-1 Financing and Investing

2. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-2 Securities ●Three major asset classes –Cash –Bonds (fixed income) –Equities ●Asset allocation –The percent of your assets in each asset category

3. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-3 Securities RiskReturn CashVery lowLow Bonds (fixed income) Moderate – HighModerate StocksHigh

4. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-4 Equities ●Stock –Common Stock  Share of ownership in a company.  Common stock owners can vote on major company decisions  They expect to receive cash dividends and to benefit from capital gains. (Often no dividends are issued.)

5. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-5 Equities ●Stock –Preferred Stock  Stock whose holders receive preference in the payment of dividends  Seldom confers voting rights  Dividends are fixed

6. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-6 Equities ●Stock –Convertible Securities  Bonds or stock that contains a conversion feature  Gives the holder the right to exchange their securities for a fixed number of shares of common stock

7. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-7 Securities Purchasers ●Investment Motivations –Primary Investment Objectives by Type of Security

8. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-8 Securities Exchanges ●Stock Exchange—centralized marketplace where primarily common stock are traded. –Stock exchanges are secondary markets, selling securities which have already been issued by firms and sold in the primary market

9. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-9 Securities Exchanges ●The New York Stock Exchange –NYSE (Big Board)—the largest, and probably the most famous, stock market in the world –Also one of the oldest, founded in 1792

10. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-10 Securities Exchanges ●The NASDAQ Stock Market –NASDAQ stock market—second-largest stock market in U.S., trading stock issues of firms that are typically smaller, less well- known than those on the NSYE –Made up of many technology companies

11. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-11 Securities Exchanges ●Foreign Stock Markets –Virtually all developed, and many developing, countries have stock exchanges –Examples include Bombay, Helsinki, Hong Kong, Mexico City, Paris, and Toronto

12. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-12 Buying and Selling Securities ●Brokerage Firm—financial intermediary that buys and sells securities for individual and institutional investors. ●E*trade: An Online Brokerage Firm

13. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-13 Buying and Selling Securities ●Placing an Order –A market order instructs a brokerage firm to obtain the highest price possible – if the investor is selling – or the lowest price possible – if the investor is buying –A limit order instructs the brokerage firm not to pay more than a specified price for stock if the investor is buying, or accept less than a specified price if the investor is selling

14. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-14 Costs of Trading ●When investors buy or sell securities through a brokerage firm, they pay a fee ●These costs vary widely among brokerage firms ●A full-service firm charges higher fees, but provides a large number of services and offers investment advice ●A discount firm charges lower fees, but offers less advice and fewer services

15. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. How’s the Market Doing? ●Bull market ●Bear market 1-15

16. Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. 1-16 Business News and Information ●Bloomberg radio, AM 1170 ●CNBC ●The Wall Street Journal ●Online: –cnn.money.com, –finance.yahoo.com –google.com/finance –bloomberg.com –vanguard.com, –fidelity.com