Chapter 2 - Assets Classes & Financial Instruments Flashcards
In financial markets, what are the the two traditional types?
Money markets & Capital markets
What are the 4 major classes of Financial Assets or Securities?
- Debt (fixed-income securities)
- Common Stocks
- Preferred Stocks
- Derivatives
what financial market is short-term, marketable, liquid, low-risk debt securities?
Money Market Securities
what financial market is longer-term and riskier securities, diverse?
Capital markets
Longer-term debt, equity, and derivative markets are 3 segments of what market?
capital market
Treasury bills Certificates of deposit Commercial paper Banker's Acceptances Repos Brokers' Call Federal funds
all of these are what type of financial market?
money market
what market consists of Bonds, Equity, and Derivatives?
capital market
What money market security is the simplest, highly liquid, exempt from state/local taxes (except federal level), and issued by government?
Treasury Bill or “T-bill”
_____is the price paid to BUY a T-bill from a dealer.
ask price (p.27)
_____ slightly lower price received if SELL a T-bill to a dealer.
bid price (p.27)
_____difference in ask/bid prices, also dealer’s profit.
bid-ask spread (p.27)
= face value x [1 - (r(n/360) / 100)]
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]
true or false. Bid (sell) price will always be higher than Ask (buy) price?
False. Ask is always higher than bid.
[(face value / actual paid now) - 1] x (365/n) = ???
Annualized Yield rate (bank-discount method)
*note the 365 days instead of 360.
annualized yield rate is also called ______ in T-bill’s?
bond-equivalent yield
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?
Capital Market
(capital) bond market is also called as ____?
fixed-income capital market
T-notes are up to ____ years.
10
T-bonds range from _____ to ____ years.
10; 30 (p.31)
semiannual interest payments on T-bonds & T-notes are called?
coupon payments
in U.S., inflation-protected Treasury bonds are called _____.
TIPS (treasury inflation protected securities)
international bonds also called ?
Eurobonds
what are bonds denominated in currency different from issuing country?
Eurobond
dollar-denominated bond sold to U.S. from foreign country?
Yankee bond (p.33)
r = Rm / (1 - t)
Equivalent taxable yield where: Rm is municipal tax-free rate, r is taxable-bond rate, t is the tax rate
what is another name for unsecured bonds?
debentures (p.36)
what type of bond gives firms option to repurchase bonds from holder at stipulated price?
Callable bonds
what type of bond gives HOLDERS the option to convert each bond into stipulated # of shares?
Convertible Bond
what are the types in 2 equity securities?
Common Stocks & Preferred Stocks
what is it called when a company’s stock is not publicly traded?
‘closely held’ (p.38)
2 most important characteristics of common stocks?
Residual Claim & Limited Liability
_____ means stockholders are last in line of all those who have a claim on assets and income in corporate liquidation.
Residual claim
______ means when shareholders’ original investment is the most that can be lost in the event of company failure.
Limited Liability
(annual dividend / stock price) x 100%
dividend yield
______ are certificates traded in U.S. markets that represent ownership in shares of a foreign company.
ADR (American Depository Receipts)
What are 3 uses of stock indexes?
- track average returns
- compare performance of managers
- base of derivatives
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?
bank-discount method
