CAPITAL MARKET

Definition Based on Law No. 58 year 1995 about capital market, the definition of capital market is a market that has public offering activities and securities trading involving public companies and institution relating to the securities. In general, capital market is place or facilities to meet the demand and supply for various long-term financial instruments that can be bought or sold, either in the form of debt or equity, both published by government, public authorities, or private sector. While the stock exchange is the party that organizes and provides a system or facilities to meet the buyer and seller of securities of other parties with aim of trade securities between them (Law no. 8 year 1995). Capital Market Instrument a. Stock is a letter of proof on the companys equity securities that are proprietary. Shares are generally divided into shares of common stock and preferred stock. Common stock is type of shares which receive profit after profits of preferred stock are paid. Preferred stock is a type of shares that have first right to receive profit and have the right to cumulative earnings b. Bond is a proof of debt from issuing companies that do not have the right to management and corporate wealth. c. Derivative is a derivative form of the main securities that exist, means stock. Derivatives that widely known in Indonesia are warrants and rights. Both the warrants and rights is the right to buy a stock at a predetermined price and time. The difference is right having a shorter trading period, between 1-2 weeks. Types of Capital Market 1) Initial Public Offering (IPO) is a place or facilities for companies to first issue the shares or bonds to the public. 2) Secondary Market is a place or facilities of trading securities between investor and the price was established by the investor through securities intermediary. 3) Third Market is a facility of trading securities between market maker and investor and price was established by market maker.

4) Fourth Market is facilities of trading securities between investor without securities intermediaries. MECHANISM IN THE SECONDARY MARKET TRANSACTIONS (IDX)
Indonesia Stock Exchange
WPPE PIALANG WPPE PIALANG BROKERS SELL

INVESTOR BUY

INVESTOR SELL

BROKERS BUY

BARGAINING AND NEGOTIATION SYSTEM

JATS

KPEI & KSEI

FUNDS SETTLEMENT TRANSACTION SHARES SHARES

INVESTOR BUY

PIALANG BUY

PIALANG SELL

FUNDS

INVESTOR SELL

ISSUER BAE

INDEX

Definition Index numbers are numbers that are made that can be used to compare similar activities or events in a different time. Activities of the event could be stock price change from time to time (Supranto J., 1992:268). Through index, investor can see the trend of current market movements, whether is rising, stable, or fall. In stock market, index is expected to have five functions (IDX): As the market trends indicator As profit level indicator As a benchmark of portfolio performance Facilitate formation of portfolio with passive strategy Facilitate the development of derivative products Type of Stock Price Index IDX has eight kinds of stock prices that continuously disseminated through media as one of the guidelines for investor to invest in capital market, there are JKSE, sector index, LQ45, JII, Kompas 100, main board index, development board index, and individual index. That eight stock price index, then characterized into three types: Individual Index, using the price index of each stock on the basic price index of each share that listing on the Stock Exchange. Example: AALI, ADMG, INDF, etc. The formula to calculate the Individual Index :
IHSI Price Market per Unit 100 Base Value per Unit

Partial Stock Price Index, using all stocks included in each sector / particular classification, e.g., sector index, LQ45, JII, Kompas 100, main board index, development board index, etc. The Formula to calculate Partial Index:
IHSP Market Capitaliza tion 100 Base Value

Composite Stock Price Index, using all stocks listed on the Stock Exchange of a country, e.g., JCI, JKSE, The Straits Time Index, Nikkei 225, etc.

There are three approaches to calculate the composite stock price index: 1) Price weighed series, stock index is influenced by the proportion of each stock price per share. The formula for calculating the price weighted series:

Index

P
Dadj

[ D adj Must be adjusted to suit the stock split/reverse]

2) Value weighted series, stock index is influenced by stock price per share and the outstanding shares of a stock, and compare with initial value that serve as the base year value. The formula for calculating the value weighted series:

Index

P Q P Q
t b

t b

100

[ Pb Qb base year value = 100]

3) Value line index, stock index with calculate the component of Index of Change / Holding Period Return (HPR) of each stock. The step of formula for calculating the value line index:
HPR (Holding Period Return) Index of Change ending value beginning value

HPR I

HPR II HPR n n
1

Value Line Index (VLI) = x Index Value Line

LAB I INTRODUCTION (MARKET INDEX) 1) Individual Stock Price Index In 1994 PT. Asuransi Bina Dana Arta, Tbk listed its shares on IDX As follows; IPO IDR 125 Nominal Value IDR 100 Outstanding shares 17,686,800 Now the market price of ABDA kept changing. Here is the stock market closing price data each year; Des-2007 IDR 190 Des-2008 IDR 175 Des-2009 IDR 230 Jan-2010 IDR 300 In February 2010 the company made a stock split with ratio 1:2 and there is a change in the nominal value from IDR 100 to IDR 50 and there was distribution of bonus shares of 31,386,240 shares. The market price is IDR 300 as of February 2010 and data for the next closing price is; Des-2010 IDR 600 Des-2011 IDR 450 Jan-2012 IDR 425 Calculate: a) Base value per unit before stock split and distribution of bonus shares! b) Base value per unit after stock split and distribution of bonus shares! c) ABDA stock index closing price on the date above! 2) Partial Stock Price Index There are following data of Plastic and Glass Sector issuers which listed on IDX ; No Issuer Stock Number Market Base Value per Code of Share Price per unit (millions) Unit 1 2 3 4 5 6 7 Aneka Kemasindo Utama Argha Karya Prima Industry Asahimas Flat Glass Asiaplast Industries Berlina Dynaplast Titan Kimia Nusantara AKKU AKPI AMFG APLI BRNA DYNA FPNI 230 680 434 1,500 138 315 5,567 IDR 120 IDR 100 IDR 1,280 IDR 1,000 IDR 3,050 IDR 2,000 IDR 108 IDR 90 IDR 1.030 IDR 980 IDR 1,280 IDR 1,000 IDR 152 IDR 100

8 9 10 11 12

Leyand International Kageo Igar Jaya Langgeng Makmur Industry Siwani Makmur Trias Sentosa

LAPD IGAR LMPI SIMA TRST YPAS

326,003 1.050 924 93 2,160 668

IDR IDR IDR IDR IDR IDR

295 IDR 175 IDR 345 IDR 148 IDR 220 IDR 590 IDR

230 140 240 110 198 540

1 3 Yanaprima Hastapersada

Based on the data above, calculate the partial index for each stock including Plastic and Glass Sector! 3) Composite stock price index Assume there are 5 issuers that is listing on NYSE
Symbol Issuers

CAS ABVT GFZ ACN ABB

A.M. Castle & Co AboveNet, Inc AAG Holding Company Accenture plc ABB LTD

. There are the data of closing price ; CAS ABVT GFZ Day 0 1 2 3 4 5
$ 10.52 10.85 9.60 10.23 11.15 11.67 $ 66.00 58.35 59.77 66.21 66.30 59.80 $ 25.23 25.50 25.94 26.20 25.35 25.11

ACN $ 54.79 55.12 55.64 56.20 55.78 54.65

ABB $ 20.76 19.69 19.57 19.28 20.31 20.95

Common stock outstanding for A.M. Castle & Co is1,230,000 shares Common stock outstanding for AboveNet, Inc is 680,000 shares Common stock outstanding for AAG Holding Company is 850,000 shares Common stock outstanding for Accenture plc is 720,000 shares Common stock outstanding for ABB LTD is 1,000,000 shares In day 2 CAS Company announced a stock reverse with ratio 4:1 In day 3 ACN announced stock reverse with ratio 2:1

Based on data above, Calculate: a) Composite stock price index with the Price Weighted Series

b) Composite stock price index with the Value Weighted Series c) Composite stock price index with the Value Line Index ( Index value line = 100)