Week 6 Lecture - Week 9. Equity Markets 1203AFE Money,...

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Week 9. Equity Markets 1203AFE Money, Banking and Finance Chapter 9 Monday 1 September 2008
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Objectives Describe the three types of equity securities Explain how equity securities are sold in the primary market Explain how equity securities are traded in the secondary markets Describe the basics of equity valuation Explain the risks associated with equities Describe the major share market indices Discuss whether the share market is a good predictor of economic activity.
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Debt vs. Equity Why Issue Shares? To raise money to finance growth Debt financing Equity financing Only corporations can issue equity Government only issues debt
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Ordinary Shares Ordinary shares are the basic ownership claim in a corporation. Shareholders share directly in the corporation’s profits and losses. However, if the firm is liquidated ordinary shareholders are paid last. The most a shareholder can lose is the amount of their investment in the firm.
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Dividends Corporate payments to shareholders are called dividends. To encourage investment, the government introduced dividend imputation. This avoids the problem of double taxation. Dividends are ‘grossed up’ by the taxes already paid by the company on the dividend amount. Tax is paid on the grossed up amount but a tax rebate is allowed.
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Voting Rights Shareholders elect a board of directors who monitor the activities of the company’s management. The election takes place by the shareholders casting votes at an annual meeting. Voting by proxy
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Preference shares represent an ownership interest in a company. If the firm is liquidated preference shareholders rank above ordinary shareholders. Preference shares have a fixed dividend and in this respect resemble corporate bonds. Nonparticipating
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Week 6 Lecture - Week 9. Equity Markets 1203AFE Money,...

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