Unformatted text preview: idends are distributed.
Preferred stock can also be: Callable
Cumulative Capital Markets
Main activities Primary Markets
Private Placement and Accredited Investors Secondary Markets
Common vs. Preferred
Underwriting Investment banks Spets who assist and sometimes underwrite the
issue and sale of new securities.
Currently, investment banks’ main activity is trading. Over-The-Counter Market
About 10,000 publicly traded corporations are traded in
NYSE, AMEX and NASDAQ;
All others may be traded directly on the OTC market; A network of several thousand brokers who maintain contact with
one another and buy and sell securities through a nationwide
electronic The OTC market trades many kinds of securities: Government treasury bonds
Mortgage backed securities
Equities (ownership script, such as shares) Valuing Stocks
The Capital Assets Pricing Model r = Rf + beta x ( Km - Rf ) where
r is the expected return rate on a security;
Rf is the rate of a "risk-free" investment, i.e. cash;
Km is the return rate of the appropriate asset class;
Beta is the volatility of the security relative to the asset class.
Financial management: Matches sources and uses of funds in the business;
Helps the CEO decide what is the best use of
Designs funding structures to minimize cost of
capital. The budget is the fundamental device for short
term financial management.
The capital and securities markets are efficient
ways to aggregate the supply and demand of
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