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AEM1200-0207 (2)

Preferred stock owners are given preference in the

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