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Chapter 2 Financial Securities Financial assets can be classified as ______________________ market securities ______________________ market securities _____________________ securities Classes of Financial Assets Money market securities are sometimes referred to as ____________ equivalents.

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Chapter 2 l.jpg

Chapter 2

Financial Securities


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Classes of Financial Assets


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Classes of Financial Assets


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  • Capital market securities include: ____________ equivalents.

    • Debt (bonds)

    • Equity

      • Common stock

      • Preferred stock

  • Bonds and preferred stock are referred to as fixed income securities

Classes of Financial Assets


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Classes of Financial Assets


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  • Bond Market ____________ equivalents.

    • US Treasury Bonds and Notes

    • Agency Issues (Fed Gov)

    • Municipal Bonds

    • Corporate Bonds

    • Mortgage-Backed Securities

Classes of Financial Assets


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  • Treasury Notes and Bonds ____________ equivalents.

    • Notes: maturities up to ________ years

    • Bonds: maturities in excess of ________ years

    • 30-yr T-bond

      • 2001, Treasury suspended sales

      • Sales resumed in 2006

    • Par value: $1,000

    • Quotes: % of par

Classes of Financial Assets


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  • Major issuers ____________ equivalents.

    • Federal Home Loan Bank

    • Federal National Mortgage Association

    • Government National Mortgage Association

    • Federal Home Loan Mortgage Corporation

Federal Agency Debt


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Municipal Bonds


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Municipal Bond Yields


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  • Issued by private firms on comparable taxable bonds. Why?

  • Semi-annual interest payments

  • Subject to higher _________________

    risk than Treasury securities

  • Options in corporate bonds

    • callable (most)

    • Convertible (some)

Corporate Bonds


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Mortgages and Mortgage-backed Securities


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Figure 2.9 Mortgage-backed institutionsSecurities Outstanding


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  • Common stock institutions

    • Residual claim

    • Limited liability

  • Preferred stock

    • Fixed dividends

    • Priority over common stock

    • Tax treatment

Capital Market - Equity


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Uses of Stock Indexes


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Factors for Construction of Stock Indexes


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Examples of U.S. Stock Indexes


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  • How are stocks weighted? institutions

    • Price weighted (DJIA)

    • Market-value weighted (S&P500, NASDAQ)

    • Equally weighted (Value Line Index)

Construction of Indexes



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