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© Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 1 Securities and Investment Strategies.

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Presentation on theme: "© Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 1 Securities and Investment Strategies."— Presentation transcript:

1 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 1 Securities and Investment Strategies

2 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 2 SecuritiesInvestments StocksStocksMutualFundsMutualFundsBondsBonds

3 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 3 Stock certificate Authorized stock Issued stock Unissued stock Stock split Par value Stocks: Important Terms

4 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 4 Dividends Voting Rights LimitedLiabilityLiquidity CommonStock

5 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 5 Preferred Stock Convertible Convertible Cumulative Cumulative

6 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 6 SecuredBonds Debentures ConvertibleBonds CorporateBonds

7 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 7 InterpretationMoody’sS&PInterpretation Highest ratingAaaAAAPrime quality Very strong capacity to payAaAAHigh grade Highest ratingAaaAAAPrime quality Strong capacity to pay; somewhat susceptible to changing business conditions AAUpper-medium grade Very strong capacity to payAaAAHigh grade More susceptible than A rated bonds BaaBBBMedium grade Strong capacity to pay; somewhat susceptible to changing conditions AAUpper-medium grade Somewhat speculativeBaBBSomewhat speculative More susceptible than A rated bonds BaaBBBMedium grade SpeculativeBB Somewhat speculativeBaBBSomewhat speculative Vulnerable to nonpaymentCaaCCCPoor standing;may be in default SpeculativeBB Highly vulnerable to nonpaymentCaCCHighly speculative; often in default Vulnerable to nonpaymentCaaCCCPoor standing; may be in default Bankruptcy petition filed or similar action taken CC Lowest rated; extremely poor chance of ever attaining real investment standing Highly vulnerable to nonpaymentCaCCHighly speculative; often in default Corporate Bond Ratings

8 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 8 U.S. Government Securities and Municipal Bonds Treasury Notes Treasury Bills Treasury Bonds U.S. Savings Bonds

9 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 9 U.S. Government Securities and Municipal Bonds Municipal Bonds General Obligation Bonds Revenue Bonds Capital Gains

10 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 10 Retirement of Debt Serial bonds Term bonds Sinking fund Callable bonds

11 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 11 Mutual Funds Load Funds Open-EndFundsOpen-EndFunds No-LoadFundsNo-LoadFunds Closed-EndFundsClosed-EndFunds Diversify Investments Manage Investments Pool Money Spread Risk

12 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 12 Types of Mutual Funds Money-MarketGrowthBalancedIncome GlobalSectorInternationalIndex

13 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 13 Options and Futures RightBuyer’s BeliefSeller’s Belief Buy Stock At Fixed Price Until Expiration Date Price Of Underlying Stock Will Increase Price Of Underlying Stock Will Decrease Sell Stock At Fixed Price Until Expiration Date Price Of Underlying Stock Will Decline Price Of Underlying Stock Will Increase Call Option Put Option

14 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 14 Speculating in Commodities Agricultural Products Raw Materials

15 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 15 Securities Market SecondarySecondary SecuritiesExchangesSecuritiesExchanges PrimaryPrimary InitialOfferingsInitialOfferings

16 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 16 Types of Stock Exchanges AuctionDealerElectronic NYSENASDAQECNs

17 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 17 Old Way New Way Specialists and Market Makers ElectronicCommunications Networks (ECNs) Buying and Selling Securities Trading Floor Trading Floor Stock Specialist Stock Specialist Computer Computer Market Maker Market Maker Computer Computer Stock Broker Stock Broker Buying on The NYSE Buying on The NASDAQ Buying on An ECN

18 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 18 IndustrySelf-RegulationIndustrySelf-Regulation Federal Laws State Laws Discourage Price Manipulation Maximize Information Access Prohibit Selective Disclosure Promote Information Accuracy SEC Trading Oversight SEC Filing Requirements Regulation of Securities Markets

19 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 19 Ask These Questions Before You Invest 1.Is the investment registered with the SEC? 2.Have you read the audited financial statements? 3.Is a registered broker offering the investment? 4.What’s in it for the person touting the investment? 5.Should you trust e-mail/bulletin board advice?

20 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 20 Ask These Questions Before You Invest 6.Are you being pressured to act? 7.Does the investment promise you’ll get rich quick? 8.Does the investment match your objectives? 9.How easy would it be to sell your investment later? 10.Does the investment originate overseas?

21 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 21 Investment Objectives GrowthIncome Investment Safety Investment Liquidity Tax Concerns

22 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 22 Investment Portfolio Rate of Return DiversificationAsset Allocation Diverse Industries Global Investments Different Investments Cash Instruments Bonds Common Stocks

23 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 23 Market Order Limit Order Day Order Margin Trading Stop Order Open Order Discretionary Order Short Selling Buying and Selling Securities

24 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 24 Rising Stock Market Falling Stock Market Analyzing Financial News

25 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 25 Watching Market Indexes and Averages Dow Jones Industrial Average (DJIA)Dow Jones Industrial Average (DJIA) Standard and Poor’s 500 (S&P 500)Standard and Poor’s 500 (S&P 500) Wilshire 5000Wilshire 5000 NASDAQ Composite IndexNASDAQ Composite Index Nikkei 225 IndexNikkei 225 Index FTSE 100 IndexFTSE 100 Index

26 © Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 26 Interpreting Financial News Stock Exchange Reports Bond Quotation Tables Mutual Fund Quotations

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