Equity Market

Context & EssenceLearning outcomesIntroductionThe financial system in briefThe money and bond markets in a nutshellEssence of the equity market IntroductionEquitiesMarket mechanismIssue (primary market)InvestingTrading (secondary market)Permanent or semi-permanent capital of the issuersStatutory backdrop to shares and share marketEquity derivativesSummaryBibliographyInstrumentsLearning outcomesIntroductionOrdinary sharesIntroductionShares with par value, shares with no par value, and share premiumResidual valueVoting rightsElastic dividend paymentsLimited liabilityPreference shares IntroductionThe "normal" or "common" preference shareThe non-cumulative preference shareThe participating preference shareThe convertible preference sharePreference share hybridsAdvantages of preference sharesNegotiable instruments representing equityIntroductionLetters of allocationCertified transfer deedsShare transfer receiptsBalance receiptsWarrantsSummaryBibliographyInvestorsLearning outcomesIntroductionOwnership distributionMotivation for holding equityStatutory environment for investorsMeasures of returnIntroductionHolding period returnAnnualised HPRArithmetic mean returnGeometric mean returnOther concepts of return IntroductionRisk-free rateExpected rate of returnRequired rate of returnRisks faced in holding financial assetsRisk predispositionMeasurement of risk in the financial marketsIntroductionStandard deviation (one asset)Standard deviation (a portfolio of shares)BetaRelationship between risk and returnRisk and return: the recordSummaryBibliographyPrimary marketLearning outcomesIntroductionEconomic function of primary marketThe law, the equity exchange and listingMotivation for listing (advantages) IntroductionEnhanced ability to raise capitalAcquisition of capital at the best possible priceIncentive for employeesIncentive for ownersCredibility and reliability of the companySource of informationDisadvantages of being listedIntroductionPrice of issue is made at a discount to perceived market valueMonetary costDisclosure of strategic information to competitionPressure by public shareholdersCosts after listingListing requirements IntroductionMain boardDevelopment capital marketVenture capital marketIntroductionPre-application submissionKey requirements of a VCM listingAlternative exchangeTypes of companies that listListed products other than shares IntroductionKruger randsDebenturesExchange traded fundsPreference sharesWarrantsMethods of listing IntroductionAn introductionA private placingA public offerSteps involved in a listingIntroductionAppointment of professional advisorsTime frame for listingOther stepsThe prospectusUnderwriting a share issueOther sources of primary issue of listed equityIntroductionWarrant ExercisingConvertible bondsTreasury sharesRights issue (offer)Renounceable offerCapitalisation issueIssue for cash or acquisitionClaw-back offerSummaryBibliographySecondary marketLearning outcomesIntroductionDefinitionSignificance of secondary marketStructure of secondary equity marketParticipants in secondary market IntroductionMembers of the exchange (stockbrokers)Ultimate borrowers: corporate sectorFinancial intermediariesUltimate lendersFund managersSpeculators and arbitrageursTrading system: automated tradingMechanics of dealing (from point of view of client)Clearing and settlementCost of dealingEquity market indicesIntroductionFTSE / Dow industry classification benchmarkCalculation of indicesEquity market efficiencySummaryBibliographyValuationLearning outcomesIntroductionBalance sheet valuation approachIntroductionBook value per shareLiquidation valueReplacement costConcluding remarkDiscounted cash flow approachIntroductionPresent value of dividends IntroductionDividend discount modelConstant growth dividend discount modelMulti-stage growth modelRequired rate of returnFree cash flowRelative valuation approachIntroductionPrice / earnings ratioPrice / cash flow ratioPrice / book value ratioPrice / sales ratioEquity valuation, inflation and interest ratesSummaryBibliography
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