intro to equities hand out

8/11/2019 Intro to Equities Hand Out

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Copyright Licensed Securities Training Solutions 2014 720 771-4386

$1000ABC Bond

2017 6%

$30

$30

$30

$30

$30

$30

$30

$30

$30

Current Yield = Annual income YTM = _____________ YTC = ______________ Price

Settlement Corps + Munis T+3 30/360Gov + Options T+1 actual/actualCash Same dayReg T T+ 5

Starter Cheat Sheet

I P Y

Settlement Date Last Coupon Date

Time Period ofAccrued Interest

A c c r u a l Fo r m u l a

Formulas

AcronymsM emory points

1 pt = $10

P N C Y Y = ( P rice Nominal C Y YTM YTC)

Corps + Munis = 1/8 Gov = 1/32

2

25% Reg TMaintenance

CMVL

50% Reg TRestricted

CMV30% Reg T

Maintenance

CMVs

Low Coupon * High Coupon

Short Maturity Long Maturity *

Discount * PremiumSmall Discount Large Discount *

Small Premium Large Premium *

Bond Volatility


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Copyright Licensed Securities Training Solutions 2014 720 771-4386 3

$ Capital $

Capital = Money Capitalization = raising money Corporations publicly raise capital

two ways: Take on more owners (sell stock) Not required to repay investment or

dividends

Take on debt (sell bonds) Must repay investment and pay interest Earnings = profits


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Common Stock Part owner of Corporation Entitled to part of

distributed profits Last in line

Dividend payment Company dissolution

BC

Common Stock

$1.00 Par value

Investment Vehicles

___________


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Common Stock Selling stock = selling ownership in the company Limited liability Stock ownership entitles an investor to a:

Certificate of ownership (a stock certificate) Right to any distributed profits

Distributed profits = Dividends Corporations dont always distribute $

Not a right to dividends/earnings Who decides? T.Q. Shareholders cant vote for div

______________________________

Inspect company books records Annual report card

Right to vote Preemptive right to maintain proportional ownership position

StockCertificate


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Common Stock Stock = equity = ownership

If it has stock in the name... Incorporation requires common stock

Privately held or sold to public Taxed on the number of shares authorized Transferability - you can sell it to someone

else __________Shares authorized in the

corporate charter

Corp must file state charter specifyinginitial number of shares

Issued Shares authorized stock sold at least once

StockCertificate

100 sharesStarbucks

Corp


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Common Stock Outstanding Shares issued stock

currently in the hands of the public ____________Stock stock which

has been bought back by thecorporation

No dividends

No voting rights

Still considered issued but notoutstanding

Not included in computation ofEPS

StockCertificate

100 sharesStarbucks

Corp


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Common Stock Pricing Car prices vary by make and model

Least expensive vehicle? Most expensive vehicle? Price is driven by supply and demand Current Market Value = CMV

Stock prices vary by company Least expensive stock?

Penny stocks - 5, 25 Most expensive stock?

Berkshire Hathaway about $100,000 per share Par value is an arbitrary value

BC

Common Stock

$1.00 Par value

Growth


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Copyright Licensed Securities Training Solutions 2014 720 771-4386

Stock Bid/Ask Prices

Customer will ________ stock from the brokeragefirm at the Ask price ( retail )

Customers will _________ their stock to the brokerage firm at the BID price ( wholesale )

Subject quote Subject of further checking Its about 16-16.5, Its quoted at 16-16.5

Firm quote A Broker/Dealers actual price It is 17.25-18.50 B/D must honor this price for 1 st 100

shares (round lot)

Bid $12.85

Ask $13.50 Spread = $.65

9


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Voting Rights100 shares = 100 votes

Position 1 Position 2 Position 3 Bill / Bob Mike / Mary John / Jane

100 votes 100 votes 100 votes

Statutory voting

100 votes per position

0 votes 0 votes 300 votes

______________voting

300 votes any way youchoose T.Q. favors the smallshareholder

Proxies for absentee voting

Stock splits Issuance of new stock Convertible bonds Mergers


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Stock Splits and Stock DividendsTotalChange #Shares Pr ice Value

Originally 100 $60 $6,000

2:1 Split (2/1) 200 (1/2) $30 $6,0003:1 Split (3/1) 300 (1/3) $20 $6,000

3:2 Split (3/2) 150 (2/3) $40 $6,000

20% StockDividend 120 $50 $6,000


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Part owner of the corporation

Preferred treatment Dividend payment Company dissolution

$100

ABC Preferred Stock

6%

_________$100

Annual rate based on par value$6 stated if no par value is given

6% of $100 = $6/year

Preferred Stock

Income

Usually give up voting rights

Entitled to part of distributed profits

If common gets a dividend...


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Preferred Stock$100

StraightPreferred

Stock

5%

No back payments

$100 CumulativePreferred

Stock

4%

Back payments

3% first round, up to anylevel allowed by BOD

$100 Participating

Preferred Stock

3% and up


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Cumulative Preferred Stock

= $4 per year

Dividends are paid quarterly orsemi annually

$1.00 per quarter Paid before common gets anything

Entitled to Back payments or payment in arrears

$100 CumulativePreferred

Stock

4%

1st quarter $ 1.002nd quarter $ .753rd quarter ---------4th quarter


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Current Yield (CY) = annual income/price

Tells an investor what they are making on their $

$100

ABC PreferredStock

6%

Preferred Stock

CMV $115

$6/$115 = .052 = 5.2%

Income $6/year


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Investment Banking

Public investors

Starbucks

$10,000,000 for expansion

1 million shares common stock

Investment Bankers

Misnamed, not really bankers

No loans or other banking functions

Help issuers raise capital (stock, bonds)

AKA Sponsor, Underwriter, Distributor


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Common Stock Authorized 1,000,000 shares

Initial Primary offering (IPO) 600,000 shares 1st time a company sells stock Considered issued and outstanding

Primary offering 100,000 shares 2nd, 3rd, 49th time a company sells stock

Total shares outstanding 700,000 shares

Primary offering means the issuer is getting the $

Secondary offering (large blocks of stock) Sold by one or more wealthy investors Issuer is usually not getting the $

StockCertificate

100 sharesPen Corp


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Prospectus - the new Car brochure Only new car buyers get a new car brochure Prospectus

Issuers are required to produce and give to investors before they invest Must include Material facts

Any fact an investor should know before purchasing Litigation, significant events, facts

No highlighting, underlining info Issuers include GM, Starbucks, investment companies

Primary Market Prospectus only required on a primary (new car) offering When an investor buys a security from an issuer

Secondary Market No prospectus required on secondary transactions When investors buy /sell to each other

SEC requirement No approval or SEC disclaimer statement on cover or first page


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Special Securities


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American Depository Receipts (ADRs)

Facilitates overseas trading of _ Banks in U.S. and foreign countries Trading of foreign company stock on U.S.

exchanges e.g. NYSE Trade with U.S. dollars Dividends paid in U.S. dollars

After foreign tax with holding No voting rights No preemptive rights

ADR

100 sharesNokia Corp


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Breyers Ice CreamCMV $5.00/box

Breyers Ice CreamCoupon $2.50

Starbucks Stock

CMV $35.00/share

__________term _________Share holders onlyPreemptive rightProportional ownership can be

diluted if not exercisedSubscription Price _________ market price

No voting / Dividend rights

Starbucks StockRight

Subscription price$31.00/share

Rights vs Warrants


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Rights vs Warrants

Breyers Ice CreamCMV $5.00/box

Breyers Ice CreamCoupon $15.00

Starbucks StockCMV $35.00/share

Starbucks StockWarrant

Subscription price$42.00/share

__________ termAnyone can buySubscription Price

_________ market price

No voting / Dividend rightsSweetener w/bondsDetachable


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Preemptive Right

Cum With Rights. Before Ex-Rights DateValue = M S

N+1Ex-Rights Without rights. After Ex-Rights Date

Value = M SN

M = Market Price e.g $34S = Subscription Price e.g $31N = Number of Rights required to buy one sharee.g.10 rights to buy each share

Preemptive Rights Formula for determining theoretical value of a

right

$ = /right


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Stock Capitalization Capitalization = # shares

outstanding x current market price

E.g.50,000,000 shares x $25 per sharemarket price = $1.25 Billion

______ Cap (Capitalization)

$300 million -$2 Billion ____________growth Hi risk/hi reward Small relatively unknown

companies

Papa Johns $564 Million

Linens and Things $766 Million

PetsMart $742 Million

Revlon $131 Million


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CapitalizationMid Cap

$2 - 10 Billion Moderate growth Medium risk/reward Medium sized companies

PepsiCo $83 Billion

Coca Cola $124 Billion

Microsoft $309 Billion

General Electric $390 Billion

Target Stores $28 Billion

Wal-Mart $236 Billion

Toys R Us $3.9 Billion

Williams Sonoma $3.98 Billion

Barnes and Noble $2.4 Billion

Wendys $3 Billion

___________Cap

Above $10 Billion ______growth Low risk/reward Large, well known companies


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Dow Jones Industrial Average (DJIA)AT&TAmerican ExpressBoeing CompanyCaterpillarChevronCisco

Coca ColaDuPontExxon MobilGeneral ElectricGoldman SachsHome Depot3MIntelIBM

Johnson & JohnsonJ.P. Morgan/ChaseMcDonalds MerckMicrosoft

NikePfizer IncProcter & GambleTravelersUnited HealthcareUnited TechnologiesVerizonVisaWal-Mart StoresWalt Disney Company


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Stock Indices Dow Jones

Composite 65 Industrials 30 Transportation 20 Utilities 15

Standard & Poor's 500 (400 are industrials, moston NYSE, some on AMEX and Nasdaq)

Standard & Poor's 100

Russell 2,000- Benchmark for ___________ stocks Wilshire 5,000- Approximately 5,000 stocks

(includes NYSE, AMEX and OTC)


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Dividend Distributions for Stocks 1 Declaration date - the day the company declares the dividend2 Ex -dividend date - day the stock trades without the dividend

Two days before the record date Stock price _________ by the amount of the dividend

3 R ecord date - the date on which ownership changes4 P ayment Date - Date the check is mailed5 Must settle by close of business on record date to get dividend

Septxxxxxxxx

xxxxxxxxxxxxxxxx

Novxxxxxxxx

xxxxxxxxxxxxxxxx

OctS M T W T F S

1 2 3 4 5 6

7 8 9 10 11 12 1314 15 16 17 18 19 2020 22 23 24 25 26 2728 29 30 31

D

REx

P

CMVBid Ask

$13.21 $14.00

Price on Ex date$12.71 - $13.50

50

DER P


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Share Price After Stock Dividend Just prior to ex-date CMV = $48

20% stock dividend declaration Assume

100 shares prior to dividend Total value of holding dividend

100 x $48 = $4800 total value 100 shares x 20% = 20 additional share

New total after dividend 120 shares $4800/120 shares = $40 New share price! Total value of holding dividend

120 x $40 = $4800 total value

intro to equities hand out

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