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Financing and Investing


SecuritiesSecurities

● Three major asset classes– Cash– Bonds (fixed income)– Equities

● Asset allocation– The percent of your assets in each asset

category


SecuritiesSecurities

Risk Return

Cash Very low Low

Bonds (fixed income)

Moderate – High Moderate

Stocks High High


EquitiesEquities

● Stock– Common Stock

Share of ownership in a company. Common stock owners can vote on

major company decisions They expect to receive cash dividends

and to benefit from capital gains. (Often no dividends are issued.)


EquitiesEquities

● Stock– Preferred Stock

Stock whose holders receive preference in the payment of dividends

Seldom confers voting rights Dividends are fixed


EquitiesEquities

● Stock– Convertible Securities

Bonds or stock that contains a conversion feature

Gives the holder the right to exchange their securities for a fixed number of shares of common stock


Securities PurchasersSecurities Purchasers

● Investment Motivations– Primary Investment Objectives by Type

of Security


Securities ExchangesSecurities Exchanges

● Stock Exchange—centralized marketplace where primarily common stock are traded.– Stock exchanges are secondary markets,

selling securities which have already been issued by firms and sold in the primary market



● The New York Stock Exchange– NYSE (Big Board)—the largest, and

probably the most famous, stock market in the world

– Also one of the oldest, founded in 1792



● The NASDAQ Stock Market– NASDAQ stock market—second-largest

stock market in U.S., trading stock issues of firms that are typically smaller, less well-known than those on the NSYE

– Made up of many technology companies



● Foreign Stock Markets– Virtually all developed, and many

developing, countries have stock exchanges

– Examples include Bombay, Helsinki, Hong Kong, Mexico City, Paris, and Toronto


Buying and Selling SecuritiesBuying and Selling Securities

● Brokerage Firm—financial intermediary that buys and sells securities for individual and institutional investors.

● E*trade: An Online Brokerage Firm


Buying and Selling SecuritiesBuying and Selling Securities

● Placing an Order– A market order instructs a brokerage firm

to obtain the highest price possible – if the investor is selling – or the lowest price possible – if the investor is buying

– A limit order instructs the brokerage firm not to pay more than a specified price for stock if the investor is buying, or accept less than a specified price if the investor is selling


Costs of TradingCosts of Trading

● When investors buy or sell securities through a brokerage firm, they pay a fee

● These costs vary widely among brokerage firms

● A full-service firm charges higher fees, but provides a large number of services and offers investment advice

● A discount firm charges lower fees, but offers less advice and fewer services


Business News and InformationBusiness News and Information

● Bloomberg radio, AM 1170● CNBC● The Wall Street Journal● Online:

– cnn.money.com, – finance.yahoo.com– google.com/finance– bloomberg.com– vanguard.com, – fidelity.com