50 Securities Market Financial Management Task 2
Task 2
Investment Banking & Securities Markets
This week we take a look at investment banking and the securities markets.
While most purchases of stocks (and bonds) occur in the secondary markets such as the New York Stock Exchange, the initial sales occur in the primary markets. The primary and secondary markets perform different functions, but both are important financial institutions. Secondary markets increase your willingness to buy securities and primary markets are the means by which your savings are transferred to firms and governments.
If firms and governments did not issue securities, you would have to find alternative uses for your savings. Firms and governments, however, do need funds, and they tap your savings through issuing and selling new securities in the primary markets. The secondary markets provide you with a means to sell these securities (or buy more) once they have been issued.
Read Chapter 3- Investment Banking
Read Chapter 4- Securities Market
Watch the video
(SOX) (10:33 min.)
This video discusses the main effects of the Sarbanes-Oxley Act on companies, executives, and audit firms. Sarbanes-Oxley (also known as SOX) is a federal law that was passed by Congress in response to a wave of accounting frauds in 2002.
Watch the video
Watch the video (1:13:24 min.)
Complete problems 1-8 in text book (pages 49-50).
Securities Market – Application
Answer the follow questions with your assigned teammate.
1. You purchase 100 shares for $50 a share ($5,000), and after a year the price rises to $60. What will be the percentage return on your investment if you bought the stock on margin and the margin requirement was (a) 25 percent, (b) 50 percent, and (c) 75 percent? (Ignore commissions, dividends, and interest expense.)
2. Repeat Problem 1 to determine the percentage return on your investment, but in this case suppose the price of the stock falls to $40 per share. What generalization can be inferred from your answers to Problems 1 and 2?
3. What are the price of stock for the three companies your team has selected? In a chart compare the prices over the past 5 years for each company. Which company has shown the best level of stability and what are some of the reasons for that?