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Test One Review Notes - FINA 4325

Test One Review Notes - FINA 4325 - FINANCE 4325...

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$ Secondary Market Investor Security CO. FIRM Buy-side Investor IB Common Stockholders Elects Board of Directors Determine Management CEO COO VP of IS VP Finance (CFO) VP HS VP Mktg FINANCE 4325 Introduction stock market index : barometer of how well the market or part of the market is doing the DOW : most talked about index o oldest : started in 1896 o 30 blue-chip, large-capitalization o Capitalization = stock price x # of shares outstanding o Small capitalization < 1 billion o Large capitalization >5 billion o “blue chip” – well-known, valuable o The 30 companies are picked by Dow Jones o There are 6,000 publicly traded companies in the U.S. o Called the Dow Jones industrial, but now there are other kinds of companies involved, definitely NO UTILITY or TRANSPORTATION in the DOW o The CNBC index reported number can be calculated by adding up the current stock price of all 30 DOW companies divided by a diviser (currently .123) 1 st ever stock exchange was created in 1790 The diviser adjusts for stock splits or if a company is booted out and another one comes in The 30 companies in the DOW are picked to represent the economy as a whole The inverse of the diviser is 8 meaning for every dollar change in stock price moves the DOW index by 8 pts Everyone of the companies has an equal say in how the DOW changes regardless of the company’s market capitalization Exxon mobile is now the largest company on the DOW (as far as market cap goes, used to be GM) History of Stock Market and DOW Index Movement Started out with a market cap around 40 1920’s boom (@ 400 pre-crash) 1929 market crash, depression 1930’s – back down to 40 again after depression 1966 - @ roughly 1,000 (never closed at 1,000) 1966-1982 – 1982 market @ 1,000 (good years and bad years in between but basically back at even by 1982 When the market stays basically even over a long period of time, called a bear market (1966-1982) ( bear market : generally going down) Bull market : generally going up Cyclical vs. secular (cyclical – short period, secular – longer period) 1982-2000 (March of 2000) – secular bull market (greatest bull market every in history) o 1,000-12,000 change in DOW index
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o Last and most recent secular bull market It’s hard to tell if you are in a bull or a bear until after the fact 2000, 2001, 2002: 3 terrible bear market years o DOW index down from 12,000 to 7,000 o Essentially, right now we are back to even with the index at 12,000 In OCT 2007 the DOW hit 14,000 but it is now back down and needs to clearly break away from recent top numbers in order to be called a cyclical bull Correction in the index is a 10% change Cyclical bear is 20% drop Reasons Why the Market Might Go Up and Down Credit crisis: mortgage loans given out that shouldn’t have been o Loans are defaulted, people don’t have as much money (JP Morgan and Citigroup bought a lot of these faulty loans) o Financial company dynamics are changing, for example, JP Morgan has just surpassed Citigroup in terms of market capitalization (HUGE DEAL) Oil prices are rising (supply set by OPEC and large demand coming from the U.S. and
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Test One Review Notes - FINA 4325 - FINANCE 4325...

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