chap 19 intro to business

Handle sale of new securities. Corp make money on securities (stock) only one time when the stock is sold on the primary market.

1st public offering of a corp stock.

handles trading of these securities b/t investors. proceeds going to investors selling the stock.

specialist who assist in the issue and sale of new securities.

investment banking firm buys the entire stock or bond issue at an agreed on discount price. Then they sell the issue to private or institutional investors at full price.

large organizations such as pension funds, mutual funds, and insurance companies, that invest their own funds or funds of others.

organization who's members can buy and sale securities for companies and individual investors.

allows companies and investors to trade stocks not listed on the large securities exchange.

nationswide electronic system that links dealers across the nation so that they can buy and sell stocks electronically.

federal agency is responsible for regulating the various stock exchanges

a condensed version of economic and financial info that a company must file with the sec before issuing stock, it must be sent to prospective investors.

using knowledge or information that individuals gain through their position that allows them to benefit unfairly from fluctuations in security prices.

shares of ownership in the company

evidence of stock ownership. Shows the name of company, number of shares rep, type of stock being issued.

dollar amount assigned to each share of stock by corporations charter.

what stock is actually worth

part of firms profits that the firm may distribute to shareholders as either cash payments or additional shares of stock.

-as owners of business, shareholders never have to be repaid their investments. -no legal obligation to pay dividends to shareholders; therefore the firm can reinvest income to finance future needs. -selling stock can improve condition of firms balance sheet since issuing stock creates no debt.

-as owners, stockholders have the right to vote for the company board of directors. -dividends are paid from profit after taxes and are not tax- deductible. -the need to keep shareholders happy can affect managers decisions.

common and preferred.

most basic form of ownership in firm. Holders of common stock have the right to elect members of the companies board of directors and vote on important issues affecting the company and they also get to share in the firms profits through dividends.

right to purchase new shares of common stock before anyone else, in order to maintain their proportional share of ownership in the company.

stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders if the company is forced out of business and its assets sold. Don't get voting right in the firm.

preferred stockholders could be required to sell their shares back to the corporation.

if one or more dividends are not paid when promised, they accumulate and the cooperation must pay them in full at a later date before it can distribute any common stock dividends.

corporate certificate than an investor has lent money to a firm or gov. firm has to pay back entire bond principal amount at a prescribed time.

exact date the issuer of the bond makes to the bondholders for use of the borrowed money.

payment issuer of the bond makes to the bondholder for use of the borrowed money.

bond interest

-bondholders are creditors of the firm, not owners. they seldom vote on corporate matters; thus, management maintains control over the firms operations. -bonds interest is a business expense and tax deductible to the firm. -they are a temp source of funding. They eventually repaid and the debt obligation is eliminated -bonds can be repaid before maturity date if they are callable. Bonds can also be converted to common stock.

-bonds increase debt (long term liabilities) and may adversely affect the markets perception of the firm. -paying interest on bonds is a legal obligation. If interest is not paid, bondholders can take legit action to force payment. -the face value of the bond must be repaid on the maturity date. W/o careful planning, this obligation can cause cash flow probs when the repayment comes due.

unsecured bonds usually called deductible bonds. and secured bonds usually called mortgage bonds.

not backed by any specific collateral (like land or equipment). Only firms with excellent reputations and credit ratings can issue these, bc of the lack of security they provide investors.

-backed by collateral such as land or buildings that is pledged to bondholders if interest or principal isn't paid when promised.

a reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond.

permits the bond issuer to pay off the bonds principal before its maturity date.

can convert them into shares of common stock in the issuing company.

registered representative who worked for a brokerage firm as a market intermediary to buy and sell securities for clients.

Investment rick- the chance that an investment will be worth less at some future time than its worth now Yield- expected return on an investment, like dividends, over period of one year. duration- the length of time your money is committed to an investment liquidity- how quickly you can get back you invested funds in cash if you want or need them. tax consequences- how the investment will affect your tax situation.

choosing stock you will believe will increase in price

choosing bonds that pay consistent interest.

involves buying several diff types of investments to spread the risk of investing.

pos diff b/t the purchase price of a stock and its sale price.

overall stock prices are rising.

expect stock prices to rise

expect stock prices to decline and sell stock in anticipation of falling prices.

these stocks reg pay dividends and experience consistent price appreciation

corp expected to grow at a faster rate than other stocks

stocks of public utilities are considered this because they usually offer investors a high dividend yield that generally keeps pace with inflation.

rep ownership in companies that complete in high- risk industries like oil exploration. they sell for less than $2 and are considered risky investments.

tells a broker to buy or sell a stock immediately at the best price available

tells broker to buy or sell a stock at a specific price, if price is available.

fewer than 100 shares at a time

an action by company that gives stockholders two or more charges of stock for each one they own.

boring some of the stocks purchase cost from the brokerage firm.

percent an investor can borrow from the broker

requiring the investor to come up with funds to cover the losses the account has suffered.

means preferred stock

price above face value

high risk, high interest bonds

organization that buys stock and bonds, and other investments, then sells shares in those securities to the public.

focuses on large companies, small companies, emerging countries, or real estate

charges investors commission to buy or sell its shares

collections of stocks, bonds, and other investments that are traded on exchanges but are traded more like individual stocks than like mutual funds.

investors give their computers instructions to sell automatically to avoid potential losses, if price of stock dips to certain point.