Investing in the Future: Securities and Investment Strategies

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Excellence in Business, 3e

Chapter 18 - 1

Securities Investments
Stocks Bonds Mutual funds

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Excellence in Business, 3e

Chapter 18 - 2

Stocks: Important Terms

Stock certificate Authorized stock Issued stock Unissued stock Par value Stock split
Excellence in Business, 3e Chapter 18 - 3

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Common Stock
Voting rights Dividends Limited liability Liquidity

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Excellence in Business, 3e

Chapter 18 - 4

Preferred Stock
Convertible preferred stock Cumulative preferred stock

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Excellence in Business, 3e

Chapter 18 - 5

Corporate Bonds
Secured bonds Debentures Convertible bonds

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Excellence in Business, 3e

Chapter 18 - 6

Corporate Bond Ratings

S&P AAA AA A BBB BB B Interpretation Highest rating Very strong capacity to pay Strong capacity to pay; somewhat susceptible to changing business conditions More susceptible than A rated bonds Somewhat speculative Speculative Moodys Aaa Aa A Baa Ba B Interpretation Prime quality High grade Upper-medium grade Medium grade Somewhat speculative Speculative

CCC
CC C

Vulnerable to nonpayment
Highly vulnerable to nonpayment Bankruptcy petition filed or similar action taken

Caa
Ca C

Poor standing;may be in default

Highly speculative; often in default Lowest rated; extremely poor chance of ever attaining real investment standing
Chapter 18 - 7

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Excellence in Business, 3e

U.S. Government Securities and Municipal Bonds

Treasury notes Treasury bills Treasury bonds Municipal bonds Revenue bonds Capital gains bonds

U.S. savings bonds General obligation

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Excellence in Business, 3e

Chapter 18 - 8

Retirement of Debt
Serial bonds Term bonds Sinking fund Callable bonds

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Excellence in Business, 3e

Chapter 18 - 9

Mutual Funds: Important Terms

Load fund
No load fund

Open end fund

Closed end fund

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Excellence in Business, 3e

Chapter 18 - 10

Types of Mutual Funds

Money market Growth Balanced Income Global International Index
Excellence in Business, 3e Chapter 18 - 11

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Options and Financial Futures

Call options Buyers Sellers Put options Buyers Sellers
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Speculating in Commodities
Agricultural products Raw materials

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Excellence in Business, 3e

Chapter 18 - 13

Securities Market
Primary Initial public offerings Secondary Stock exchanges

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Excellence in Business, 3e

Chapter 18 - 14

Types of Stock Exchanges

Auction NYSE Dealer NASD Electronic ECNs
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Buying and Selling Securities

Auction exchange (NYSE)
Exchange floor Stock specialist Dealer exchange (NASDAQ) Computer Market maker Electronic communication networks Computer Broker
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Regulation of Securities Markets

Federal laws State laws Industry self-regulation

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Excellence in Business, 3e

Chapter 18 - 17

Ask These Questions Before You Invest

1. Is the investment registered with the SEC? 2. Have you read the audited financial statements?

3. Is a registered broker offering the investment?

4. Whats in it for the person touting the investment? 5. Should you trust e-mail/bulletin board advice?

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Excellence in Business, 3e

Chapter 18 - 18

Ask These Questions Before You Invest

6. Are you being pressured to act? 7. Does the investment promise youll get rich quick?

8. Does the investment match your objectives?

9. How easy would it be to sell your investment later? 10. Does the investment originate overseas?

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Excellence in Business, 3e

Chapter 18 - 19

Investment Objectives
Income Growth Safety Liquidity Tax concerns

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Excellence in Business, 3e

Chapter 18 - 20

Investment Portfolio
Rate of return Asset allocation Diversification

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Excellence in Business, 3e

Chapter 18 - 21

Buying and Selling Securities

Market Order Stop Order

Limit Order
Day Order Margin Trading
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Open Order
Discretionary Order Short Selling
Chapter 18 - 22

Excellence in Business, 3e

Analyzing Financial News

Bull market Rising market Bear market Falling market

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Excellence in Business, 3e

Chapter 18 - 23

Watching Market Indexes and Averages

Dow Jones Industrial Average (DJIA) Standard and Poors 500 (S&P 500) Wilshire 5000 NASDAQ Composite Index

Nikkei 225 Index

FT-SE 100 Index
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Interpreting Financial News

Stock exchange reports Bond quotation tables Mutual fund quotations

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Excellence in Business, 3e

Chapter 18 - 25