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Financiering. Jeroen E. Ligterink [email protected] 2001. BMM 12 Topics Covered. Investment Decision vs. Financing Decision Market Efficiency Weak form efficiency Semi-strong form efficiency Strong form efficiency Lessons of Market Efficiency. Market Efficiency.

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Bmm 12 topics covered
BMM 12 Topics Covered

  • Investment Decision vs. Financing Decision

  • Market Efficiency

    • Weak form efficiency

    • Semi-strong form efficiency

    • Strong form efficiency

  • Lessons of Market Efficiency


Market efficiency
Market Efficiency

Efficient Capital Markets - Financial markets in which security prices rapidly reflect all relevant information about asset values.

Random Walk - Security prices change randomly, with no predictable trends or patterns.


Random walk theory
Random Walk Theory

  • The movement of stock prices from day to day DO NOT reflect any pattern.

  • Statistically speaking, the movement of stock prices is random (skewed positive over the long term).




Market efficiency1
Market Efficiency

Weak Form Efficiency - Market prices rapidly reflect all information contained in the history of past prices.

Semi-Strong Form Efficiency - Market prices reflect all publicly available information.

Strong Form Efficiency - Market prices reflect all information that could in principle be used to determine true value.


Lessons of market efficiency
Lessons of Market Efficiency

  • Markets have no memory

  • Trust market prices

  • There are no financial illusions

  • Do it yourself diversification

  • Seen one stock, seen them all

  • Reading the entrails


Bmm 13 topics covered
BMM 13, Topics Covered

  • Common Stock

  • Preferred Stock

  • Corporate Debt

  • Convertible Securities

  • Patterns of Corporate Financing


Patterns of corporate financing
Patterns of Corporate Financing

  • Firms may raise funds from external sources or plow back profits rather than distribute them to shareholders.

  • Should a firm elect external financing, they may choose between debt or equity sources.



Bmm 14 topics covered
BMM 14: Topics Covered

  • Venture Capital

  • The Initial Public Offering

  • The Underwriters

  • General Cash Offers

  • The Private Placement


Initial offering
Initial Offering

Initial Public Offering (IPO) - First offering of stock to the general public.

Underwriter - Firm that buys an issue of securities from a company and resells it to the public.

Spread - Difference between public offer price and price paid by underwriter.

Prospectus - Formal summary that provides information on an issue of securities.

Underpricing - Issuing securities at an offering price set below the true value of the security.


General cash offers
General Cash Offers

Seasoned Offering - Sale of securities by a firm that is already publicly traded.

General Cash Offer - Sale of securities open to all investors by an already public company.

Shelf Registration - A procedure that allows firms to file one registration statement for several issues of the same security.

Private Placement - Sale of securities to a limited number of investors without a public offering.


Rights issue
Rights Issue

Rights Issue - Issue of securities offered only to current stockholders.

Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?


Rights issue1
Rights Issue

Example - YRU Corp currently has 9 million shares outstanding. The market price is $15/sh. YRU decides to raise additional funds via a 1 for 3 rights offer at $12 per share. If we assume 100% subscription, what is the value of each right?

  • Current Market Value = 9 mil x $15 = $135 mil

  • Total Shares = 9 mil + 3 mil = 12 mil

  • Amount of new funds = 3 mil x $12 = $36 mil

  • New Share Price = (136 + 36) / 12 = $14.25/sh

  • Value of a Right = 15 - 14.25 = $0.75


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