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CU Essay 3 Prezi

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Courtney Drake

on 24 January 2010

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Transcript of CU Essay 3 Prezi

_ Stocks & Bonds _ __ Stocks Bonds ____ Corporations Investors Earnings Key Statistics Why How? Types Risk Price Price 52-week Range P/E PEG EPS Dividend Yield Return on Equity Market Cap Beta Long Term Debt to Capital Evidence of ownership
Shares of ownership in a corporation
Bought and sold on a public stock exchange
Used by public corporations to finance business activities
Riskier investments
Better investments during periods of inflation

Evidence of loans
Interest-bearing certificates sold by corporations and governments
Fixed-income securities
Used to finance debt for expansion or capital
Traditionally safer investments
Better investments during periods of deflation
_______________________ . . . . . . . . . . . 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Ratings So you want to buy a bond... Time
(Years) Maturity
Date Principal
(face value) Par Value Coupon = Coupon rate*Principal Original loan to be repaid on bond's maturity date Interest issuer agreed to pay each year Principal returned at maturity date __ Bond prices f l u c t u a t e as interest rates change. Benefits to investors... Bonds in your portfolio... Rule #1:
Always use a key statistic in conjunction with others to get the full picture of a stock

Rule #2:
Compare key statistics of a stock relative to:
Past
Peers/Industry
Portfolio
Preference
Nano Cap: under $50 million
Micro Cap: $50 million to $300 million
Small Cap: $300 million to $2 billion
Mid Cap: $2 billion to $10 billion
Large Cap: $10 billion to $200 billion
Mega Cap: $200 billion or greater
Why go public?
Young companies in need of capital
Invest in new projects
Reduce holding in company

The Process
Arrange an IPO with an investment banking firm
Investment bank makes shares available to clients and investors
Offer subsequent, or follow-up, stocks in the future

Split Stock
Redistribute outstanding shares and prices
Split when the market price is too high
Makes shares more affordable for smaller investors

Common
Preferred Types
of Stocks Appreciation
Dividends
Rights
Vote in person or by proxy
Receive periodic reports of performace
Not liable for corporation's debt
Closing, current, or last bid price
Reflects the demand for shares of the stock Stock’s lowest and highest trading prices for the year
Shows where the stock has been and helps estimate future prices Gives a rough idea of the price investors are willing to pay for a stock relative to its underlying earnings
Gauges how cheap or expensive a stock may be
High > 30
Low < 15
Compare to competitors, industry,
and the S&P500
Fairly valued if P/E is the same as 5-year growth
Compare to the P/E ratio
Undervalued if growth<P/E
Overvalued if growth>P/E Return on investment for a stock independent of its earnings
Companies offering dividends tend to be in more stable sectors, such as consumer staples or utilities
Be suspicious of a yield over 10% (dividend payment/share price) (stock price/net earnings per share) (price to earnings ratio/earnings per share growth) (net income of company/total shares outstanding) Portion of corporation’s profit allocated to each outstanding share of common stock
Indicator of company’s profitability and capital efficiency
Independent of price and volume of shares (net income/shareholder's equity) Measures a corporation’s profitability
Shows how much profit a company generates with shareholders' investments
Compare relative to competitors (stock price*number of shares outstanding) Measure of corporate size and market estimate of a company’s value
Basis for determining competitors (long term debt/stockholder equity) Shows how a company has funded its growth
Used to identify the amount of leverage used by a specific company
Compare to competitors to analyze a company’s risk exposure 1.0 (monthly stock price change/monthly price change of S&P500) Measure of stock's volatility relative to the market
Greater than 1.0 indicates higher risk or volatility; conversely lower than 1.0 indicates lower volatility
Compare to the market and peers (% of shares owned by institutional investors) Shows prospects of a stock
Can create changes in a stock price or heighten susceptibility to trends
Notice if institutions seem to be avoiding a particular stock or if they seem over-invested Consistent stream of income
Low risk, low return
Greater claim on issuer’s income than shareholders during financial distress

Stability
Keep a stock-focused portfolio sturdy, especially when seeking long-term returns
Issuers:
U.S. Federal Government: Treasuries
Government agencies
Corporations
State and local governments: Municipal bonds

Interest Structures

Based on:
Issuer’s ability to make interest and principal payments to bondholders
Provisions of a particular security and how they affect bondholders
Whether bondholders would get paid if the issuer declares bankruptcy
Brokerage Account
Anything from a 10-year treasury to a one-year junk bond
TreasuryDirect
Purchase notes, bills, and bonds directly from the Treasury
Mutual Funds
Achieve instant diversification
_ - _ Bonds ? What it “costs” to get the roommate to move in. For a less picky roommate, the price may be lower—a small room in the house and a shared bathroom. A more high-maintenance roommate may cost you the master bedroom with attached bathroom and a shelf and a half in the refrigerator. Consider what you are willing to give up to get this roommate to move in and how much “bang for your buck” there is. Price in the analogy: in the analogy: Your new roommate’s 52-week range is a good piece of information to gather on the walkthrough. What have they been doing for the last year? The range could span from being convicted of a felony six months ago (are you willing to go that low?) to a high of receiving a promotion at work. Gauge where your roommate is now in his or her 52-week range and you can better predict how he or she might behave while in your house. On the walkthrough, you might want to ask what other apartments he or she is considering. What are other people offering this person in their homes? Gauge this against your roommate’s earnings, or what this roommate can consistently offer you to improve your quality of life, be it similar lifestyle or cleanliness. If other people are offering your roommate some great perks, that may indicate the roommate can offer you a lot. If your roommate’s potential for becoming a good friend is equal to the basic roommate perks like cleanliness and similar lifestyle, he or she is fairly valued. If you are instantly friends during the walkthrough, this roommate might be undervalued and you should snatch him or her up. On the other hand, if the roommate is instantly annoying and rubs you the wrong way from the outset, he or she may be overvalued. zzzzz Consider how much time your new roommate will spend at your house. That proportion represents your shares in your roommate. Now consider the earnings you will receive from hour (one share) of his or her time.
Will your roommate spend that hour cleaning or leaving dirty dishes in the sink? This is independent of your roommate’s initial or current “price” and the amount of hours (shares) your roommate spends in the house. Dividends are the bonus features of your roommate. Even though you picked an emotionally unstable individual, he or she may still have a huge flat screen TV you can use or a dog that loves to go on hikes with you. Regardless of how your new roommate behaves, you still have access to these perks. Your new roommate asked for a shelf and a half in the refrigerator. What will he or she do with this investment? Cook dinner for you once a week or fill the refrigerator with empty orange juice cartons? You might think about the opportunities for fun or friendship your new roommate can offer you. If you are looking for a dynamic roommate with the same interests as you, you might want to go for a If you are just looking for a quiet, clean person to keep rent low, you might want to go with a small cap roommate Once you have located several potential small cap roommates, you can compare other attributes between them. cap roommate LARGE This comes down
to
size comparison, growth,
and
volatility. How will your roommate pay rent? What kind of income stream does he or she have? What is the likelihood that you will have to cover rent and be paid back a few days later because of the manner in which your new roommate deals with finances? How high is your tolerance for commotion in your house? If you know you will not be able to function normally with someone who blasts music until 2 am every night, you might want to avoid a more “volatile” roommate. Consider whether your potential roommate has an “institutional investor”, a.k.a. a significant other, and the resulting likelihood of volatility in your household. Institutional Ownership
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