Chapter 19 - Chapter 19 Securities Markets I The function...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 19: Securities Markets I. The function of securities markets a. Places like NYSE and NASDAQ are financial marketplaces for stock sand bonds b. Serve 2 major functions: b.i. Assist businesses in finding long-term funding to finance capital needs b.ii. Provide private investors a place to buy and sell securities investments), such as stocks, bonds, and mutual funds c. Two types of markets c.i. Primary markets c.i.1. handle the sale of new securities c.i.2. corporations make money on the ale of their securities ONLY ONCE—when they are firs sold on the primary market c.i.3. initial public offering IPO) is the firs public offering of a corporation’s stock c.ii. Secondary markets c.ii.1. handles the trading of securities between investors, with the proceeds of a sale going to the in store selling these tock, not to the corporation whose stock is sold d. companies usually try to raise money through borrowing or retained earnings, but if that’ snot possible then they may be able to raise funds by issuing corporate bonds (det) or selling stock (ownership) e. The Role of investment bankers e.i. Investment bankers : specialists who assist in the issue and sale of new securities e.ii. they help companies prepare the extensive financial analyses necessary to gain SEC approval for stocks or bond issues e.iii. also may buy the full stock and then sell it to private or institutional investors e.iii.1. institutional investors : e.iii.1.a. large organizations, such as pension funds, mutual funds, insurance companies, and banks -that invest their own funds or the funds of others II. Debt financing by selling bonds a. Bond : a corporate certificate indicating that a person has lent money to a firm b. Learning the language of bonds b.i. A bond is a contract of indetedness issued by a corporation or government unit that promises payment of a principal amount at a specified future time, plus interest
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
b.ii. Interest is paid to the holder of the bond until the principal amount is due b.iii. Interest : b.iii.1. the payment the issuer of the bond makes to the bondholders for use of the borrowed money b.iii.2. also known as the coupon rate b.iii.3. interest rate varies according ot factors lke state of the economy, reputation of the company issuing the ond, and the going interest rate for govnermetn bonds or bonds of similar ocmpanies b.iii.4. once the intrest rate is set, it cannot be changed c. bonds are issued with a denomination, which is the amont of debt represented by one bond d. the principal is the face value of a bond d.i. the copany is legally boudnt o repay the bond principal to the bondholder in full on the maturity date e. Advantages of issuing bonds e.i. Bondholders are creditors, not owners, fo the firm so management still gets to maintain control over th efirm’s operations e.ii. Interest paid on bonds Is tax deductible e.iii. Bonds ar ea temporary source of funding for a firm; they’re eventually repaid and the debt obligation eliminated e.iv.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

Page1 / 9

Chapter 19 - Chapter 19 Securities Markets I The function...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online