Save 37% off PRO during our Black Friday Sale! »

Introduction to business: financial markets

1247d0fbb1983f2e8070809bb7acd6ef?s=47 Ted Major
February 25, 2016

Introduction to business: financial markets

CC-BY-SA

1247d0fbb1983f2e8070809bb7acd6ef?s=128

Ted Major

February 25, 2016
Tweet

Transcript

  1. Financial markets: Allocating financial resources cc licensed ( BY NC

    ND ) flickr photo by photog63: http://flic.kr/p/GzRs8
  2. Quiz • Closed book/closed notes • Phones & computers put

    away • You may collaborate with your team • You are responsible for the answers on your quiz • You do not have to choose the same answers as your team
  3. Time Value of Money • Dollar today vs dollar tomorrow?

    creative commons licensed (BY-NC-SA) flickr photo by Cathérine: https://flic.kr/p/4wjsVc
  4. cc licensed ( BY NC ND ) flickr photo by

    tomfs: http://flic.kr/p/8zGd2J
  5. Pay for it?

  6. Cash?

  7. Loan! (debt)

  8. cc licensed ( BY NC SD ) flickr photo by

    axoplasm: http://flic.kr/p/6wWbD
  9. Pay for it?

  10. Loan?

  11. Cash! (equity)

  12. Sources for capital financing?

  13. Depositary institutions • Commercial banks • Credit unions • Savings

    & loans
  14. Non-depositary institutions • Institutional investors • Securities brokers • Securities

    dealers • Investment banks
  15. Types of securities markets • Primary –Initial sale of stocks/bonds

    –Sold by investments banks/underwriters –Proceeds go to company • Secondary –Resale market –Sold on exchange –Proceeds go to investors
  16. Debt: Bonds • face value (usu. $1000) • coupon rate

    • yield
  17. bond rates maturity yield October 2 yr AA 0.96 0.82

    5 yr AAA 1.24 1.36 10 yr AAA 2.44 2.38 20 yr AAA 3.64 3.66
  18. Debt: Bonds • discount/premium –10yr AAA corporate, 1% coupon rate

    –discount –10yr AAA corporate, 4% coupon rate –premium
  19. Debt: Bonds • maturity date • callable bonds • convertible

    bonds • unsecured/secured • sinking fund
  20. debt advantages • bondholders are creditors with no say in

    management • interest paid is tax-deductible • temporary source of funding; will be retired
  21. debt disadvantages • increase debt –liabilities on balance sheet –may

    hurt ratios: e.g., debt ratio • legal obligation to pay interest • face value must be repaid at maturity
  22. Equity: stock • preferred, cumulative preferred • common • IPO

  23. Initial public offering • Best, 2014: –Shake Shack (SHAK): +267%

    –Spark Therapeutics (ONCE): +218% –Aduro Biotech (ADRO): +107% • Worst, 2015: –Etsy (ETSY): -74% –Terra Form Global(GLBL): -70% –Invitae (NVTA): -58%
  24. Google (2004) • priced $85 • closed $100 • today?

  25. Facebook (2012) • priced $38 • closed $38.23 • today?

  26. Twitter (2013) • priced $26 • closed $44.90 • today?

  27. Equity: stock • stock certificate • par value • dividends

  28. equity advantages • never have to repay shareholders • no

    obligation to pay dividends • can improve balance sheet –no new debt –increased cash
  29. equity disadvantages • shareholders have some control of firm •

    dividends are not tax deductible • shareholder concerns can affect management decisions
  30. Securities Regulation • SEC –Securities Act, 1933, –Securities Exchange Act,

    1934 • EDGAR –Electronic Data Gathering, Analysis, and Retrieval system • prospectus