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burlaréis

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Published in: Business, Economy & Finance

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Transcript

  • 1. Chapter 2 Financial Instruments
  • 2. Major Types of Securities
    • Debt
      • Money market instruments
      • Bonds
    • Common stock
    • Preferred stock
    • Derivative securities
  • 3. Markets and Instruments
    • Money Market
      • Debt Instruments
      • Derivatives
    • Capital Market
      • Bonds
      • Equity
      • Derivatives
  • 4. Money Market Instruments
    • Treasury bills
    • Certificates of deposit
    • Commercial Paper
    • Bankers Acceptances
    • Eurodollars
  • 5. Money Market Instruments (Cont.)
    • Repurchase Agreements (RPs) and Reverse RPs
    • Federal Funds
    • Brokers’ Calls
    • LIBOR Market
  • 6. T- Bill Pricing From dealer point of view Ask – Selling price Bid -- Purchase price
  • 7. Certificate of Deposit Fixed term
  • 8. Commercial paper Unsecured debt Backed by line of credit
  • 9. Bankers’ acceptance “Post dated check ” Bank accepts responsibility for payment
  • 10. Eurodollars Dollar denominated deposits at foreign banks No Fed regulations
  • 11. Repos Short term overnight borrowing Investor buys securities and then sells back at higher price – price difference is interest
  • 12. Reverse Repo Dealer buys securities and then sells back at a higher price
  • 13. Fed Funds Overnight loans of reserves between banks
  • 14. Bond Markets
      • US Treasury Bonds and Notes
      • Agency Issues (Fed Gov)
      • International Bonds
      • Municipal Bonds
      • Corporate Bonds
      • Mortgage-Backed Securities
  • 15. Treasury Notes / Bonds Notes – 10 years Bonds – 10 – 30 years
  • 16. Treasury Notes / Bonds $1,000 denominations Semi-annual coupon payments Coupon payment is interest Based value * coupon rate *.5
  • 17. Federal Agency Debt Fannie Mae Federal National Mortgage Association Ginnie Mae Government national mortgage association
  • 18. Federal Agency Debt Freddie Mac Federal Home Loan Mortgage Corporation Implicit government guarantee Lower risk => Lower interest
  • 19. Municipal Bond Yields
    • Interest income on most municipals is not subject to tax
    • To compare the yields on municipals to other bonds use equivalent taxable yield
    • (municipal return) / (1 – tax rate)
    • Or solve for the tax rate that equates the two yields
    • Tax rate = 1 – (municipal rate/taxable rate)
  • 20. Capital Market - Equity
    • Common stock
      • Residual claim
      • Limited liability
    • Preferred stock
      • Fixed dividends - limited
      • Priority over common
      • Tax treatment
  • 21. Stock Market Indexes
    • Uses
      • Track average returns
      • Comparing performance of managers
      • Base of derivatives
    • Factors in constructing or using an Index
      • Representative?
      • Broad or narrow?
      • How is it constructed?
  • 22. Examples of Indexes - Domestic
    • Dow Jones Industrial Average (30 Stocks)
    • Standard & Poor’s 500 Composite
    • NASDAQ Composite
    • NYSE Composite
    • Wilshire 5000
  • 23. Bond Indexes
    • Lehman Brothers
    • Merrill Lynch
    • Salomon Brothers
    • Specialized Indexes
      • Merrill Lynch Mortgage
  • 24. Construction of Indexes
    • How are stocks weighted?
      • Price weighted (DJIA)
      • Market-value weighted (S&P500, NASDAQ)
      • Equally weighted (Value Line Index)
    • How returns are averaged?
      • Arithmetic (DJIA and S&P500)
      • Geometric (Value Line Index)
  • 25. Stock Indices
  • 26. Stock Indices
  • 27. Stock Indices
  • 28. Stock Indices
  • 29. Stock Indices
  • 30. Stock Indices
  • 31. Value Index
  • 32. Value Index
  • 33. Equally Weighted Index
  • 34. Averaging Methods
    • Component Return
    • A=10% B= (-5%) C = 20%
    • Arithmetic Average
    • [.10 + (-.05) + .2] / 3 = 8.33%
    • Geometric Average
    • [(1.1) (.95) (1.2)] 1/3 - 1 = 7.84%
  • 35. Construction of Indexes
    • How returns are averaged?
      • Arithmetic (DJIA and S&P500)
      • Geometric (Value Line Index)
  • 36. Derivatives Securities
    • Options
    • Basic Positions
      • Call (Buy)
      • Put (Sell)
    • Terms
      • Exercise Price
      • Expiration Date
      • Assets
    • Futures
    • Basic Positions
      • Long (Buy)
      • Short (Sell)
    • Terms
      • Delivery Date
      • Assets
  • 37.  
  • 38.