L1_Financial_Markets

L1_Financial_Markets - Equities (Security Analysis) Admin...

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Equities (Security Analysis)
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2 Lecturer: Dr Francois Toerien Office: Leslie Commerce 5.37. Core Available times: Tu and Thu from 9:00 to 11:00. E-mail: francois.toerien@uct.ac.za
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3 Tutorials and Exam. Numbered (detailed) slides and notes – Vula CFA-based curriculum Examinable: all slides readings lectures chapters in B,K and M that are covered
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4 Course Structure 1. The Trading of Securities 2. The JSE 3. Earnings Estimation and Earnings 4. Introduction to Valuation and the DDM 5. FCF Models 6. Relative Valuations 7. Analysing Financial Statements 8. Valuing the Company 9. Dilution and Earnings per Share 10.Technical Analysis
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5 Chapters covered… Ch 3: How Securities are Traded Ch 17: Macroeconomic and Industry Analysis Ch 18: Equity Valuation Models Ch 19: Financial Statement Analysis Note: Much of the work covered in this module is not covered by Brodie, Kane and Marcus.
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The Trading of Securities Bodie, Kane & Marcus Chapter 3
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7 Topics Equities as financial assets The markets and role players How securities are issued. Margin trading Short selling
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8 Financial Assets Direct Investing Indirect Investing (e.g. Mutual Funds) Money Market Instruments Capital Market Instruments Derivative Instruments (warrants, futures, options etc.) Fixed Income Instruments (government bonds, company bonds etc.) Equity Instruments (shares, preference shares etc.)
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9 Markets for Securities Institutional Security Markets Formal, organised exchanges (national or regional) Buyer and seller trading through broker Only members can trade Listing requirements Examples: LSE, NYSE, JSE etc.
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10 Markets for Securities Over-the-Counter Market (OTC) Decentralised market Unlisted shares (generally no listing requirements) Network of dealers buy and sell shares Examples: Nasdaq, BJM OTC (discontinued) Direct Trading between 2 parties
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11 Characteristics of good markets Availability of information Timely, accurate info on prices, volumes, bids, asks etc. Execute quickly and near current price ( price continuity ) - prices only change dramatically on new information Requires “ market depth ” (lots of buyers & sellers at each price) – volume does not change price Transaction costs are low Informational efficiency Prices rapidly adjust to new information Manipulation of prices is unlikely
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12 Liquidity Definition : ease of trade / tradability of asset. A very liquid share is one that is often traded ( i.e. there are usually many buyers and many sellers). A measure of liquidity : Turnover Ratio = Total Value of All Market Transactions Total Stock Market Value
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13 Example The value of a stock market is 20 billion Euros There are R200 billion Euros worth of stock transactions during the year Therefore: The Turnover Ratio = = 10x What does this mean?
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This note was uploaded on 06/01/2011 for the course FIN 3026W taught by Professor Drtoerien during the Summer '09 term at University of Cape Town.

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L1_Financial_Markets - Equities (Security Analysis) Admin...

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