Introduction to business: financial markets

CC-BY-SA

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