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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

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Chapter 2 l.jpg

Chapter 2

Financial Securities


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  • Financial assets can be classified as

    • ______________________ market securities

    • ______________________ market securities

    • _____________________ securities

Classes of Financial Assets


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  • Money market securities are sometimes referred to as ____________ equivalents.

  • Examples of money market securities:

Classes of Financial Assets


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  • 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


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  • Derivative securities

    • Options

    • Futures

Classes of Financial Assets


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  • Bond Market

    • 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

    • 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

    • Federal Home Loan Bank

    • Federal National Mortgage Association

    • Government National Mortgage Association

    • Federal Home Loan Mortgage Corporation

Federal Agency Debt


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  • Issued by state and local governments

  • Types

    • General obligation bonds

    • Revenue bonds

  • Maturities – range up to 30 years

Municipal Bonds


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  • The interest rate on munis is lower than the interest rate on comparable taxable bonds. Why?

Municipal Bond Yields


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  • 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


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  • 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


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Figure 2.9 Mortgage-backed Securities Outstanding


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  • Common stock

    • Residual claim

    • Limited liability

  • Preferred stock

    • Fixed dividends

    • Priority over common stock

    • Tax treatment

Capital Market - Equity


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  • Measure of ______________ performance

  • ________________________ to evaluate investment performance

  • Base of derivatives

Uses of Stock Indexes


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  • Representative?

  • Broad or narrow?

  • How is it weighted?

Factors for Construction of Stock Indexes


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  • Dow Jones Industrial Average (30 Stocks)

  • Standard & Poor’s 500 Composite

  • NASDAQ Composite

  • NYSE Composite

  • Wilshire 5000

Examples of U.S. Stock Indexes


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  • 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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Relative performance of Stock market indexes


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