Chapter 2 Flashcards
How do you calculate the break-even point on a municipal bond versus corporate bond
(Bond %)/1-tax rate) = Corporate Return
Why would someone buy a muni bond over a corporate bond?
Muni bonds are better for those in a higher tax rate because they are non taxable
What is a bid price
The price at which a dealer or other trader is willing to purchase
What is an ask price
The price at which a dealer or other trader will sell a security
What is the bid-ask spread
The difference between the bid and asked prices
What is the money market?
Short-term, highly liquid, and relatively low risk debt instruments
What instruments are used in the money market?
Securities, CD, Commercial Paper, Treasury Bills
What instruments are considered fixed income
Government Bonds, Corporate Bonds, Municipal Bonds
What are federal funds?
Funds in the accounts of commercial banks at the Federal Reserve Bank
What is LIBOR?
London Interbank Offer Rate. Lending rates among banks in the London Market
What is common stock?
Ownership shares in a publicly held corporation. Gives voting rights and may have dividends
What is preferred stock?
Features of both equity and debt. Pays a fixed income stream but does not have voting power
What is a call option?
A call option gives its holder the right to purchase an asset for a specified price, called the exercise or strike price
What is a call option?
The right to buy an asset at a specified exercised price on or before a specified expiration date
What is a put option?
The right to sell an asset at a specified exercise price on or before a specified date
