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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

Chapter 2

Financial Securities

classes of financial assets

Financial assets can be classified as

    • ______________________ market securities
    • ______________________ market securities
    • _____________________ securities
Classes of Financial Assets
classes of financial assets3

Money market securities are sometimes referred to as ____________ equivalents.

  • Examples of money market securities:
Classes of Financial Assets
classes of financial assets4

Capital market securities include:

    • Debt (bonds)
    • Equity
      • Common stock
      • Preferred stock
  • Bonds and preferred stock are referred to as fixed income securities
Classes of Financial Assets
classes of financial assets6

Bond Market

    • US Treasury Bonds and Notes
    • Agency Issues (Fed Gov)
    • Municipal Bonds
    • Corporate Bonds
    • Mortgage-Backed Securities
Classes of Financial Assets
classes of financial assets7

Treasury Notes and Bonds

    • 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
federal agency debt

Major issuers

    • Federal Home Loan Bank
    • Federal National Mortgage Association
    • Government National Mortgage Association
    • Federal Home Loan Mortgage Corporation
Federal Agency Debt
municipal bonds

Issued by state and local governments

  • Types
    • General obligation bonds
    • Revenue bonds
  • Maturities – range up to 30 years
Municipal Bonds
corporate bonds

Issued by private firms

  • Semi-annual interest payments
  • Subject to higher _________________

risk than Treasury securities

  • Options in corporate bonds
    • callable (most)
    • Convertible (some)
Corporate Bonds
mortgages and mortgage backed securities

Developed in the 1970s to help liquidity of financial institutions

  • Proportional ownership of a pool or obligation secured by a pool
  • Market has experienced very high rates of growth
  • Recent problems in the ______________ market
Mortgages and Mortgage-backed Securities
capital market equity

Common stock

    • Residual claim
    • Limited liability
  • Preferred stock
    • Fixed dividends
    • Priority over common stock
    • Tax treatment
Capital Market - Equity
uses of stock indexes

Measure of ______________ performance

  • ________________________ to evaluate investment performance
  • Base of derivatives
Uses of Stock Indexes
examples of u s stock indexes

Dow Jones Industrial Average (30 Stocks)

  • Standard & Poor’s 500 Composite
  • NASDAQ Composite
  • NYSE Composite
  • Wilshire 5000
Examples of U.S. Stock Indexes
construction of indexes

How are stocks weighted?

    • Price weighted (DJIA)
    • Market-value weighted (S&P500, NASDAQ)
    • Equally weighted (Value Line Index)
Construction of Indexes
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