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Equity Market - Prof. Dr AP Faure

Year 2013

1. Context & Essence1.1. Learning outcomes1.2. Introduction1.3. The financial system in brief1.4. The money and bond markets in a nutshell1.5. Essence of the equity market 1.5.1. Introduction1.5.2. Equities1.5.3. Market mechanism1.5.4. Issue (primary market)1.5.5. Investing1.5.6. Trading (secondary market)1.5.7. Permanent or semi-permanent capital of the issuers1.6. Statutory backdrop to shares and share market1.7. Equity derivatives1.8. Summary1.9. Bibliography2. Instruments2.1. Learning outcomes2.2. Introduction2.3. Ordinary shares2.3.1. Introduction2.3.2. Shares with par value, shares with no par value, and share premium2.3.3. Residual value2.3.4. Voting rights2.3.5. Elastic dividend payments2.3.6. Limited liability2.4. Preference shares 2.4.1. Introduction2.4.2. The "normal" or "common" preference share2.4.3. The non-cumulative preference share2.4.4. The participating preference share2.4.5. The convertible preference share2.4.6. Preference share hybrids2.4.7. Advantages of preference shares2.5. Negotiable instruments representing equity2.5.1. Introduction2.5.2. Letters of allocation2.5.3. Certified transfer deeds2.5.4. Share transfer receipts2.5.5. Balance receipts2.5.6. Warrants2.6. Summary2.7. Bibliography3. Investors3.1. Learning outcomes3.2. Introduction3.3. Ownership distribution3.4. Motivation for holding equity3.5. Statutory environment for investors3.6. Measures of return3.6.1. Introduction3.6.2. Holding period return3.6.3. Annualised HPR3.6.4. Arithmetic mean return3.6.5. Geometric mean return3.7. Other concepts of return 3.7.1. Introduction3.7.2. Risk-free rate3.7.3. Expected rate of return3.7.4. Required rate of return3.8. Risks faced in holding financial assets3.9. Risk predisposition3.10. Measurement of risk in the financial markets3.10.1. Introduction3.10.2. Standard deviation (one asset)3.10.3. Standard deviation (a portfolio of shares)3.10.4. Beta3.11. Relationship between risk and return3.12. Risk and return: the record3.13. Summary3.14. Bibliography4. Primary market4.1. Learning outcomes4.2. Introduction4.3. Economic function of primary market4.4. The law, the equity exchange and listing4.5. Motivation for listing (advantages) 4.5.1. Introduction4.5.2. Enhanced ability to raise capital4.5.3. Acquisition of capital at the best possible price4.5.4. Incentive for employees4.5.5. Incentive for owners4.5.6. Credibility and reliability of the company4.5.7. Source of information4.6. Disadvantages of being listed4.6.1. Introduction4.6.2. Price of issue is made at a discount to perceived market value4.6.3. Monetary cost4.6.4. Disclosure of strategic information to competition4.6.5. Pressure by public shareholders4.6.6. Costs after listing4.7. Listing requirements 4.7.1. Introduction4.7.2. Main board4.7.3. Development capital market4.7.4. Venture capital market4.7.4.1. Introduction4.7.4.2. Pre-application submission4.7.4.3. Key requirements of a VCM listing4.7.5. Alternative exchange4.8. Types of companies that list4.9. Listed products other than shares 4.9.1. Introduction4.9.2. Kruger rands4.9.3. Debentures4.9.4. Exchange traded funds4.9.5. Preference shares4.9.6. Warrants4.10. Methods of listing 4.10.1. Introduction4.10.2. An introduction4.10.3. A private placing4.10.4. A public offer4.11. Steps involved in a listing4.11.1. Introduction4.11.2. Appointment of professional advisors4.11.3. Time frame for listing4.11.4. Other steps4.12. The prospectus4.13. Underwriting a share issue4.14. Other sources of primary issue of listed equity4.14.1. Introduction4.14.2. Warrant Exercising4.14.3. Convertible bonds4.14.4. Treasury shares4.14.5. Rights issue (offer)4.14.6. Renounceable offer4.14.7. Capitalisation issue4.14.8. Issue for cash or acquisition4.14.9. Claw-back offer4.15. Summary4.16. Bibliography5. Secondary market5.1. Learning outcomes5.2. Introduction5.3. Definition5.4. Significance of secondary market5.5. Structure of secondary equity market5.6. Participants in secondary market 5.6.1. Introduction5.6.2. Members of the exchange (stockbrokers)5.6.3. Ultimate borrowers: corporate sector5.6.4. Financial intermediaries5.6.5. Ultimate lenders5.6.6. Fund managers5.6.7. Speculators and arbitrageurs5.7. Trading system: automated trading5.8. Mechanics of dealing (from point of view of client)5.9. Clearing and settlement5.10. Cost of dealing5.11. Equity market indices5.11.1. Introduction5.11.2. FTSE / Dow industry classification benchmark5.11.3. Calculation of indices5.12. Equity market efficiency5.13. Summary5.14. Bibliography6. Valuation6.1. Learning outcomes6.2. Introduction6.3. Balance sheet valuation approach6.3.1. Introduction6.3.2. Book value per share6.3.3. Liquidation value6.3.4. Replacement cost6.3.5. Concluding remark6.4. Discounted cash flow approach6.4.1. Introduction6.4.2. Present value of dividends Introduction6.4.2.2. Dividend discount model6.4.2.3. Constant growth dividend discount model6.4.2.4. Multi-stage growth model6.4.2.5. Required rate of return6.5. Free cash flow6.6. Relative valuation approach6.6.1. Introduction6.6.2. Price / earnings ratio6.6.3. Price / cash flow ratio6.6.4. Price / book value ratio6.6.5. Price / sales ratio6.7. Equity valuation, inflation and interest rates6.8. Summary6.9. Bibliography
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