Chapter 2 - Assets Classes & Financial Instruments Flashcards

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0
Q

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

A

Money markets & Capital markets

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1
Q

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

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

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

A

Money Market Securities

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3
Q

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

A

Capital markets

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4
Q

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

A

capital market

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5
Q
Treasury bills
Certificates of deposit 
Commercial paper
Banker's Acceptances
Repos
Brokers' Call
Federal funds

all of these are what type of financial market?

A

money market

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6
Q

what market consists of Bonds, Equity, and Derivatives?

A

capital market

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8
Q

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

A

Treasury Bill or “T-bill”

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9
Q

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

A

ask price (p.27)

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10
Q

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

A

bid price (p.27)

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11
Q

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

A

bid-ask spread (p.27)

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12
Q

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

A

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]

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13
Q

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

A

False. Ask is always higher than bid.

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14
Q

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

A

Annualized Yield rate (bank-discount method)

*note the 365 days instead of 360.

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15
Q

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

A

bond-equivalent yield

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16
Q
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?
A

Capital Market

17
Q

(capital) bond market is also called as ____?

A

fixed-income capital market

18
Q

T-notes are up to ____ years.

A

10

19
Q

T-bonds range from _____ to ____ years.

A

10; 30 (p.31)

20
Q

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

A

coupon payments

21
Q

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

A

TIPS (treasury inflation protected securities)

22
Q

international bonds also called ?

A

Eurobonds

23
Q

what are bonds denominated in currency different from issuing country?

A

Eurobond

24
Q

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

A

Yankee bond (p.33)

25
Q

r = Rm / (1 - t)

A
Equivalent taxable yield
where: 
Rm is municipal tax-free rate, 
r is taxable-bond rate, 
t is the tax rate
26
Q

what is another name for unsecured bonds?

A

debentures (p.36)

27
Q

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

A

Callable bonds

28
Q

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

A

Convertible Bond

29
Q

what are the types in 2 equity securities?

A

Common Stocks & Preferred Stocks

30
Q

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

A

‘closely held’ (p.38)

31
Q

2 most important characteristics of common stocks?

A

Residual Claim & Limited Liability

32
Q

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

A

Residual claim

33
Q

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

A

Limited Liability

34
Q

(annual dividend / stock price) x 100%

A

dividend yield

35
Q

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

A

ADR (American Depository Receipts)

36
Q

What are 3 uses of stock indexes?

A
  1. track average returns
  2. compare performance of managers
  3. base of derivatives
37
Q

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?

A

bank-discount method