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The investment banker may then sell the shares to

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Unformatted text preview: iscount on the sale price of the securities. For example, an investment banker may pay the issuing firm $24 per share for stock that will be sold for $26 per share. The investment banker may then sell the shares to members of the selling group for $25.25 per share. In this case, the original investment banker earns $1.25 per share ($25.25 sale price $24 purchase price). The members of the selling group earn 75 cents for each share they sell ($26 sale price $25.25 purchase price). Although some primary security offerings are directly placed by the issuer, the majority of new issues are sold through public offering via the mechanism just described. Interpreting Stock Quotations The financial manager needs to stay abreast of the market values of the firm’s outstanding stock, whether it is traded on an organized exchange, over the counter, or in international markets. Similarly, existing and prospective stockholders need to monitor the prices of the securities they own because these prices represent the current value of their investments. Price quotations, which include current price data along with statistics on recent price behavior, are readily available for actively traded stocks. The most up-to-date “quotes” can be obtained electronically, via a personal computer. Price information is available from stockbrokers and is widely published in news media. Popular sources of daily security price 320 PART 2 Important Financial Concepts Hint Preferred stock quotations are listed separately and include only four data items: dividend, dividend yield, closing price, and change in closing price from the previous day. quotations include financial newspapers, such as the Wall Street Journal and Investor’s Business Daily, and the business sections of daily general newspapers. Figure 7.3 includes an excerpt from the NYSE quotations, reported in the Wall Street Journal of March 18, 2002, for transactions through the close of trading on Friday, March 15, 2002. We’ll look at the quotations for common stock for McDonalds, highlighted in the figure. The quotations show that stock prices are quoted in dollars and cents. The first column gives the percent change in the stock’s closing price for the calendar year to date. You can see that McDonalds’ price has increased 8.5 percent ( 8.5) since the start of 2002. The next two columns, labeled “HI” and “LO,” show the highest and lowest prices at which the stock sold during the preceding 52 weeks. McDonalds common stock, for example, traded between $24.75 and $31.00 during the 52-week period that ended March 15, 2002. Listed to the right of the company’s name is its stock symbol; McDonalds goes by “MCD.” The figure listed right after the stock symbol under “DIV” is the annual cash dividend paid on each share of stock. The dividend for McDonalds was $0.23 per share. The next item, labeled “YLD%,” is the dividend yield, which is found by dividing the stated dividend by the last share price. The dividend yield for McDonalds is 0.8 percent (0.23 28.72 0.0080 0.8%...
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