Introduction to business: financial markets

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