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by: Jeanne Daugherty


Jeanne Daugherty
GPA 3.84

Douglas Smith

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About this Document

Douglas Smith
Study Guide
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This 5 page Study Guide was uploaded by Jeanne Daugherty on Thursday September 17, 2015. The Study Guide belongs to FIN 3244 at Florida State University taught by Douglas Smith in Fall. Since its upload, it has received 90 views. For similar materials see /class/205373/fin-3244-florida-state-university in Finance at Florida State University.




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Date Created: 09/17/15
1 2 net supplier of funds 0 individuals as a group are net suppliers of funds they put more money into the financial system than they take out institutional investor makeupbehavior O institutional investorsinvestment professionals who are paid to manage other people39s money These professionals trade large volumes of securities for individuals businesses and governments Institutional investors include financial institutionsbanks life insurance companies mutual funds and pension funds For example a life insurance company invests its premium receipts to earn returns that will permit payments to policyholders or beneficiaries Institutional investors generally invest larger sums of money on behalf of others and therefore are often more sophisticated in investment knowledge and methods 3 capital gain calculation 4 0 capital gainloss shares X sell price buy price ie Joe bought 500 shares of stock at 10share A year later he sold all shares for 12share What is he capital gainloss capital gainloss 5001210 1000 investor age group preferences 0 0 Young investors ages 2045 tend to prefer growthoriented investments that stress capital gains rather than current income Often young investors don39t have much in the way of investable funds so capital gains are viewed as the quickest if not necessarily the surest way to build capital Young investors tend to favor growthoriented and speculative high risk vehicles particularly highrisk common stocks options and futures Middle age investors ages 4560 are in the consolidation phase of life Family demands and responsibilities such as educational expenses and retirement contributions become more important The whole portfolio goes through a transition to higherquality securities Lowrisk growth and income stock highgrade bonds preferred stocks convertibles and mutual funds are all used at this age Investors in their retirement years ages 60 are concerned with preservation of capital and current income A secure high level of income is paramount Capital gains are viewed as merely a pleasant occasional byproduct of investing The investment portfolio now becomes highly conservative It consists of lowrisk income stocks and mutual funds highyielding government bonds quality corporate bonds bank CDs and other shortterm vehicles At this stage the investor reaps the rewards of a lifetime of saving and investing 5 types of income to an individual 0 Active income consists of everything from wages and salaries to bonuses tips pension income and alimony Active income is made of up income earned on the job as well as most other forms of noninvestment income Portfolio income is earning generated from various types of investments This category covers most but not all types of investments from savings accounts stocks bonds and mutual funds to options and futures For the most part portfolio income consists of interest dividends and capital gains 0 Passive income is a special category of income composed chiefly of income derived from real estate limited partnerships and other forms of taxadvantaged investments 6 gavel 94 mil lg l39n mu delay m 0 H39i ive39i nii 7 markets where long and shortterm securities are sold 0 money marketmarket where shortterm securities are bought and sold capital marketmarket where longterm securities are bought and sold primary marketthe market in which new issues of securities are sold to the public secondary marketthe market in which securities are traded after they have been issued an aftermarket 1 broker marketthe securities exchanges on which the two sides of a transactions the buyer and seller are brought together to trade securities national exchange New York Stock Exchange NYSE American Stock Exchange AMEX regional stock exchanges options exchanges futures exchanges dealer marketthe market in which the buyer and seller are not brought together directly by instead have their orders executed by dealers that make markets in the given security National Association of Securities Dealers Automated Quotation System Nasdaq overthecounter OTC market 8 regulatory agencies and the markets they oversee 0 Securities and Exchange Commission SECfederal agency that regulates securities offerings and markets 0 National Association of Securities Dealers NASDtrade association that selfregulates under the supervision of the SEC the securities industry establishes standardized procedures for securities trading and ethical behavior monitors and enforces compliance with these procedures serves as the industry spokesperson NOTE any securities firms that are not members of the NASD must agree to direct SEC supervision 9 new issue components and underwrite makeuporganization O N 0 To go public a company must obtain the approval of current private shareholders find an investment bank willing to underwrite the offering investment bankerfinancial intermediary that specializes in selling new security issues and advising firms with regard to major financial transactions underwriting syndicatea group formed by an investment banker to share the financial risk associated with underwriting new securities underwritingthe role of the investment banker in bearing the risk of reselling at a profit the securities purchased from an issuing corporation at an agreedon price selling groupa large number of brokerage firms that join the originating investment bankers each accepts responsibility for selling a certain portion of a new security issue compensation for underwriting and selling services typically comes in the form of a discount on the sale price of the securities ie An investment banker will pay 24share of stock that will be sold for 26share The investment banker may then sell the shares to members of the selling group for 2525 125share profit to investment banker and the selling group will sell them to the public 75share profit for the selling group file a registration statement with the Securities and Exchange Commission SEC prospectusa portion of a security registration statement that describes the key aspect of the issue the issuer and its management and financial position red herringa preliminary prospectus made available to prospective investors during the waiting period between the registration statement39s filing with the SEC and its approval once approved by the SEC the community can analyze the company39s prospects however the company must observe a quotquiet periodquot from the time the statement is filed to one month after the IPO is complete in which there are restrictions on what company officials may say about the company road showa series of presentations to investors to promote the stock offering gauges demand to set an expected price range as well as advertises the company39s stock secondary market functions The secondary market permits an investor to easily sell his or her holdings to someone else Transactions in the secondary market do not involve the corporation that issued the stocks The secondary market provides investors with liquidity and a mechanism for continuous pricing of securities to reflect their value at each point in time various market indexes domestic and foreign indexesnumbers used to measure the general behavior of stock prices by measuring the current price behavior of a representative group of stocks in relation to a base value set at an earlier point in time Wilshire 500 indexmeasure of the total dollar value of more than 6000 actively traded stocks on the major exchanges Standard and Poor39s indexestrue indexes that measure the current price of a group of stock s relative to a base set in the 1941 1943 period having an index of 10 industrials index transportation index utilities index financials index composite index MidCap index SmallCap index 1500 SuperComp index NYSE composite indexmeasure of the current price behavior of stocks listed on the NYSE relative to a base of 5000 set at December 31 2003 AMEX composite indexmeasure of the current price behavior of all shares traded on the AMEX relative to a base of 550 set at December 29 1995 Nasdaq Stock Market indexesmeasures of current price behavior of securities traded in the Nasdaq stock market relative to a base of 100 set at specified dates composite index Nasdaq 100 biotech computer Value Line indexes Value Line composite indexstock index that reflects the percentage changes in share prices of about 1700 stocks relative to a base of 100 set at June 30 1961 Frank Russell Company indexes Russell 1000 Russell 2000 Russell 3000 The Wall Street Journal publishes a number of global and foreign stock market indexes Dow Jones indexes for countries in the Americas Europe Africa Asia and the Pacific region About 35 foreign stock market indexes are also given for major countries World Index EuropeAus raliaFar East EAFE MSCI Index amp types of orders market orderan order to buy or sell at the best price available when the order is placed limit orderan order to buy at or below a specified price or to sell at or above a specified price fillorkill ordercanceled if not immediately executed day orderif not executed automatically canceled at the end of the day good39tilcanceled GTC ordergenerally remains in effect for 6 months unless executed canceled or renewed stoploss orderan order to sell a stock when its market prices reaches or drops below a specified level can also be used to buy stock when its market price reaches or rises above a specified level day order GTC order stoplimit orderan order to buy or sell stock at a given price or better once a stipulated stop price has been met


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