Stocks CHAPTER 3 Slide 2 What are we going to learn in this
chapter? Slide 3 Stocks What does a stock represent? What does it
mean if you are a stockholder? How do you gain wealth when you own
a stock? Common Stocks Slide 4 Stocks Income Stocks Blue-chip
Stocks Growth Stocks Cyclical Stocks Defensive Stocks Slide 5 How
Stocks Work STEP ONE Koray decides to invest in the stock market.
Berna decides to sell 300 shares of Fenerbahce stock to help pay
for a new car, even though she has a rich husband. STEP TWO Koray
has been thinking of investing in the Fenerbahce. He calls his
broker, who is a member of the Borsa Istanbul, to get a quote on
Fenerbahce. Berna checks the prices at Borsa Istanbul online. Slide
6 How Stocks Work STEP THREE Korays broker and Berna find out the
current quote and price for Fenerbahce from an electronic data
system that continually updates information directly from the Floor
of the Borsa Istanbul. Slide 7 How Stocks Work STEP FOUR Taking
into account what he already knows about Fenerbahce, Koray
instructs his broker to purchase 300 shares of Fenerbahce at the
current market price. Berna logs into her online brokerage account,
which is linked to a brokerage firm that is a member of the Borsa
Istanbul, and places an order to sell her 300 shares at the current
market price. Slide 8 How Stocks Work STEP FIVE Both orders are
sent electronically to the Borsa Istanbul Trading Floor. STEP SIX A
Designated Market Maker (DMM) uses enhanced technology to bring
together buyers and sellers, improve prices and serve as a point of
accountability. Slide 9 How Stocks Work STEP SEVEN Borsa Istanbul
trading engine automatically executes any market or limit order
that is marketable against the exchange quote up to 1 million
shares. This is called auto-execution. STEP EIGHT Both orders are
represented as auction market orders in order to have the
opportunity for price improvement. The DMM oversees all orders to
make sure the transactions are executed fairly and in an orderly
manner. Slide 10 How Stocks Work STEP NINE After the transaction is
executed, notices are sent to the firms originating the orders and
to the consolidated tape so that a written record is made of every
transaction. STEP TEN The transaction is reported by computers and
appears on the consolidated tape displays across the country and
around the world Slide 11 How Stocks Work STEP ELEVEN The
transaction is processed electronically, crediting Korays brokerage
firm and debiting the account of Bernas brokerage firm. Korays
broker calls him and tells him at what price he bought 300 shares
of XYZ. In a couple of days, Koray receives a written confirmation.
Berna receives confirmation from her brokerage firm electronically
on her computer within seconds. These confirmations describe the
trade and its details. Slide 12 How Stocks Work STEP TWELVE Koray
settles his account within three business days after the
transaction by submitting payment to his brokerage firm for the 300
shares of Fenerbahce, plus any applicable commissions. Bernas trade
is also settled in three business days. Her account will be
credited with the proceeds of the sale of stock, minus any
applicable commissions. Slide 13 How do you think stock prices are
determined? Slide 14 What Drives Stock Prices Financial health of a
company Whose stocks would you consider for purchase? Likelihood to
lose money Announcements Historical behavior Future prospects
Mergers & Acquisitions Slide 15 What Drives Stock Prices
Industry Even though HPs desktop sales are good, would you invest
in it? Why? Why not? Cyclical industries When would you consider
buying shares of Altnba? Slide 16 What Drives Stock Prices Economic
Trends A very profitable firm in Greece: buy or sell? Which signals
would you consider? Consumer Price Index (CPI) Shrinking economy
Slide 17 What Drives Stock Prices World news FED Announcements
Egypt and TemSa China improving investment conditions Brazils
rating being improved Slide 18 How to Read a Stock Table 52 Week
High and Low Stock Dividends Yield % P/E 52 High 52 Low StockDivYld
%P/ESales 1000s HighLowLastChg
63.8835.31XYZ1.763.91516684045.7342.2044.58-0.07 Slide 19 How to
Read a Stock Table Sales 1000s High Low Last Change 52 week
LowStockDivYld %P/ESales 1000s HighLowLastChg
63.8835.31XYZ1.763.91516684045.7342.2044.58-0.07 Slide 20 Why would
investors buy stocks? Slide 21 How Firms Issue Stocks Primary
market Secondary market Initial public offering Seasoned equity
offering Slide 22 How Firms Issue Stocks Investment Banking Public
offerings Underwriters How many underwriter/s? Underwriting
syndicate Slide 23 How Firms Issue Stocks Advisory role Preliminary
registration statement Red herring Prospectus Public announcement
Firm commitment Slide 24 How Firms Issue Stocks Slide 25 Private
Placements Why bother? Any disadvantages? Slide 26 How Firms Issue
Stocks Initial Public Offerings Investment bankers Exchange
approval Prospectus Road show Bookbuilding Revisions Slide 27 How
Firms Issue Stocks Why do investors truthfully reveal their
interest in an offering to the investment banker? Might they be
better off expressing little interest, in the hope that this will
drive down the offering price? Interest expressed Allocation size
Optimism Bookbuilding Underpricing Slide 28 How Firms Issue Stocks
Slide 29 Order Types Market Orders Price-Contingent Orders Stop
Orders Slide 30 Stock Market Indexes Slide 31 Slide 32 Stock Market
Indexes Price-weighted index Portfolio Index The portfolio and the
index have. StockInitial PriceFinal PriceSharesI. V. StocksF.V.
Stocks ABC253020500600 XYZ10090110090 TOTAL600690 Slide 33 Stock
Market Indexes Market-value weighted index Total market value
S&P500 StockInitial PriceFinal PriceSharesI. V. StocksF.V.
Stocks ABC253020500600 XYZ10090110090 TOTAL600690 Slide 34 Stock
Market Indexes Equally weighted index Rebalancing StockInitial
PriceFinal PriceSharesI. V. StocksF.V. Stocks ABC253020500600
XYZ10090110090 TOTAL600690 Slide 35 END OF CHAPTER
