Chapter 2 - Assets Classes & Financial Instruments

Question 0

In financial markets, what are the the two traditional types?

Answer 0

Money markets & Capital markets

Question 1

What are the 4 major classes of Financial Assets or Securities?

Answer 1

1. Debt (fixed-income securities)
2. Common Stocks
3. Preferred Stocks
4. Derivatives

Question 2

what financial market is short-term, marketable, liquid, low-risk debt securities?

Answer 2

Money Market Securities

Question 3

what financial market is longer-term and riskier securities, diverse?

Answer 3

Capital markets

Question 4

Longer-term debt, equity, and derivative markets are 3 segments of what market?

Answer 4

capital market

Question 5

Treasury bills
Certificates of deposit 
Commercial paper
Banker's Acceptances
Repos
Brokers' Call
Federal funds

all of these are what type of financial market?

Answer 5

money market

Question 6

what market consists of Bonds, Equity, and Derivatives?

Answer 6

capital market

Question 8

What money market security is the simplest, highly liquid, exempt from state/local taxes (except federal level), and issued by government?

Answer 8

Treasury Bill or “T-bill”

Question 9

_____is the price paid to BUY a T-bill from a dealer.

Answer 9

ask price (p.27)

Question 10

_____ slightly lower price received if SELL a T-bill to a dealer.

Answer 10

bid price (p.27)

Question 11

_____difference in ask/bid prices, also dealer’s profit.

Answer 11

bid-ask spread (p.27)

Question 12

= face value x [1 - (r(n/360) / 100)]

Answer 12

bank-discount method formula

Step 1 - [r x (n/360)]
Step 2 - [step 1 / 100]
Step 3 - [1 - step 2]
Step 4 - [step 2 x face value of bond]

Question 13

true or false. Bid (sell) price will always be higher than Ask (buy) price?

Answer 13

False. Ask is always higher than bid.

Question 14

[(face value / actual paid now) - 1] x (365/n) = ???

Answer 14

Annualized Yield rate (bank-discount method)

*note the 365 days instead of 360.

Question 15

annualized yield rate is also called ______ in T-bill’s?

Answer 15

bond-equivalent yield

Question 16

U.S. Treasury Bonds & Notes
Agency Issues (Fed Agency Debt)
Municipal Bonds
International Bonds
Corporate Bonds
Mortgage-backed Securities

• all of these are why type of financial market?

Answer 16

Capital Market

Question 17

(capital) bond market is also called as ____?

Answer 17

fixed-income capital market

Question 18

T-notes are up to ____ years.

Answer 18

10

Question 19

T-bonds range from _____ to ____ years.

Answer 19

10; 30 (p.31)

Question 20

semiannual interest payments on T-bonds & T-notes are called?

Answer 20

coupon payments

Question 21

in U.S., inflation-protected Treasury bonds are called _____.

Answer 21

TIPS (treasury inflation protected securities)

Question 22

international bonds also called ?

Answer 22

Eurobonds

Question 23

what are bonds denominated in currency different from issuing country?

Answer 23

Eurobond

Question 24

dollar-denominated bond sold to U.S. from foreign country?

Answer 24

Yankee bond (p.33)

Question 25

r = Rm / (1 - t)

Answer 25

``` Equivalent taxable yield where: Rm is municipal tax-free rate, r is taxable-bond rate, t is the tax rate ```

Question 26

what is another name for unsecured bonds?

Answer 26

debentures (p.36)

Question 27

what type of bond gives firms option to repurchase bonds from holder at stipulated price?

Answer 27

Callable bonds

Question 28

what type of bond gives HOLDERS the option to convert each bond into stipulated # of shares?

Answer 28

Convertible Bond

Question 29

what are the types in 2 equity securities?

Answer 29

Common Stocks & Preferred Stocks

Question 30

what is it called when a company's stock is not publicly traded?

Answer 30

'closely held' (p.38)

Question 31

2 most important characteristics of common stocks?

Answer 31

Residual Claim & Limited Liability

Question 32

_____ means stockholders are last in line of all those who have a claim on assets and income in corporate liquidation.

Answer 32

Residual claim

Question 33

______ means when shareholders' original investment is the most that can be lost in the event of company failure.

Answer 33

Limited Liability

Question 34

(annual dividend / stock price) x 100%

Answer 34

dividend yield

Question 35

______ are certificates traded in U.S. markets that represent ownership in shares of a foreign company.

Answer 35

ADR (American Depository Receipts)

Question 36

What are 3 uses of stock indexes?

Answer 36

1. track average returns 2. compare performance of managers 3. base of derivatives

Question 37

what is type of yield method where bill's discounted from its maturity based on "360-day" year and reported as a % of face value?

Answer 37

bank-discount method