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FIN 307 > Exam 1 - Chapter 2 [Slides] > Flashcards

Exam 1 - Chapter 2 [Slides] Flashcards

1
Q

Asset Classes
Debt
- Short term are placed in what type of markets

A

Money Markets

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2
Q

Asset classes
- Debt
What is long-term debt stored in (What market)

A

Capital

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3
Q

What are the two Asset Classes

A

Debt
- Short- term & Long-term
Equity/Stock

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4
Q

Who has Treasury Bills?

A

Federal Government

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5
Q

Who has Certificates of Deposit

A

Commercial Banks

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6
Q

Who has Commercial Paper?

A

Corporations -> Only high level corporations

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7
Q

Who has Bankers’ Acceptances

A

Post dated check -> guarantee by commercial banks

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8
Q

Who has Eurodollars

A

Dollar denominated time deposit in foreign countries
Foreign countries keyword
- It’s a time deposit

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9
Q

Who has Repurchase Agreement (Repos)

A

Collaterized short-term debt

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10
Q

Who has Broker’s Calls

A

Margin loan

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11
Q

Who has Federal funds

A

Loan for reserve requirement

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12
Q

Is Repurchase Agreement short-term or long-term?

A

Short-term

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13
Q

Treasury Bills

- Issued by?

A

Federal Government

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14
Q

Treasury Bills

- Denominations?

A

$100, commonly $10,000

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15
Q

Treasury Bills

- Maturity

A

4, 13, 26, or 52 weeks

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16
Q

Treasury Bills

- Liquidity (high or low)

A

Highly liquid

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17
Q

Treasury Bills

- Is there a Default risk?

A

None

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18
Q

Treasury Bills

- Quoted in?

A

Discount

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19
Q

Treasury Bills

- Is there taxation?

A

No, Federal taxes owed, exempt from state and local taxes

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20
Q

Commercial Paper

- Issued by?

A

Large creditworthy corporations and financial institutions

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21
Q

Commercial Paper

- Maturity?

A

Maximum 270 days, usually 1 to 2 months

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22
Q

Commercial Paper

- Denomination

A

Minimum $100,000

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23
Q

Commercial Paper

- Liquidity?

A

3 months or less are liquid if marketable

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24
Q

Commercial Paper

- Default risk

A

Unsecured, Rated, Mostly high quality

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25
Q

Commercial Paper

- Quoted in

A

Discount

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26
Q

Commercial Paper

- Taxation

A

Interest income is fully taxable

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27
Q

Bankers Acceptance

A
  • Originates when a purchaser of goods authorizes its bank to pay the seller for the goods at a date in the future ( a draft is used like a post dated check)
  • When the purchaser’s bank agrees to “accept” the draft it becomes a contingent liability of th bank and becomes a marketable security
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28
Q

What is Eurodollars

A
  • Dollar denominated (time) deposits held outside the U.S

- Usually pay a higher interest rate than U.S. deposit

29
Q

Are yields on money markets s instruments always comparable?

A

No, because they use different price Quotations methods: Discount or BEY?

30
Q

What are the 2 factors to consider for yield calculation?

A
  1. Par Value vs. Investment Value

2. Quotes may use different day count convention (360 vs 365 days in a year)

31
Q

What do they treat 1 year as in days

A

360 days

32
Q

1% point is ____ bases point

A

100

33
Q

What is .05 is ____ bases point

A

50

34
Q

What is the actual discount formula?

A

Discount rate x How many days / 360 x Suppose par value

35
Q

What cant you compare directly to bond Yield?

Why?

A

T-bill

- because the discount rate is not a yield

36
Q

What are the two ways for Quoting is ?

A

1 . Bond Equivalent Yield

2. Discount Rate

37
Q

What is the difference between Treasury Bonds and Notes?

A

Maturity

38
Q

What are the 5 Long-term Debt Instruments

A
  1. Treasury Bonds/Notes
  2. Government-Sponsored Agency issues
  3. Municipal bonds
  4. Corporate Bonds
  5. Eurobonds
39
Q

What is most common
Semi annual
Annually
Quarterly

A

Semiannual

40
Q

What is a premium bond

A

Par value is more than bond price

41
Q

Federal Agency/ Government Sponsored Enterprise Issues

What majority debts they issue?

A

Home mortgage related debts

42
Q

What are MBS Also issued by

A

Subsidiaries of Investment Banks

43
Q

What is CMO also called?

A

Derivatives security

44
Q

What is Munis

A

Municipal Bonds

45
Q

Does Municipal Bond have Default Risk

A

Yes

46
Q

Are Municipal Bonds have Taxation

A

They are tax exempt from Federal Income Tax

47
Q

What is Marginal Tax rate also called?

A

Tax Bracket

48
Q

Debt that isn’t security is called?

A

Debenture

49
Q

Why is it called Security Debenture

A

Since its backed by something

50
Q

What are the 3 bond rating service companies

A

Standard and poor
Moodys
Fitch

51
Q

Eurobonds:

A

Foreign currency-denominated bonds issued by the foreign companies

52
Q

What are the most popular Eurobonds?

A

Euro dollar bonds & Euro yen bonds

53
Q

Foreign bonds:

A

Domestic currency-denominated bonds issued by the foreign companies

54
Q

What are example of foreign bonds

A

Yankee, Samurai, Arirang, Bulldog bonds

55
Q

What is equity also called?

A

Equity

56
Q

4 things in common stock

A
  • Residual claim
  • limited liability
  • preemptive rights
  • voting rights
57
Q

Preemptive rights

A

Stock owner as a owner whenever is there a new issues of common stock the existing shareholder has the right to buy first

58
Q

Votings right

A

Annual meeting an elect directors

59
Q

What’s different between common stock and preferred stock

A

Common stock - Dividend vary over time

Preferred stock - dividend is fixed

60
Q

Who has priority preferred or common stock?

A

Preferred

61
Q

What’s the drawback of preferred stock?

A

Double taxation

62
Q

What doesnt preferred stock have compared to common stock?

A

Voting rights

63
Q

Preferred stock

- Corporate tax exclusion on ___% dividend earned

A

70%

64
Q

What are the uses of Stock and Bond Indexes

A
  • Track market average returns
  • Comparing performance of Portfolio managers
  • Reflect overall market perception on economic status in the foreseeable future
65
Q

Factors in constructing or using an index

A

Representative
Broad or narrow
How is it constructed

66
Q

To construct an equity index, we need to determine 2 things

A

What stocks to include

What weighting schemes to use

67
Q

Equally weighted index

A

Portfolio index where the same amount of $ in each stock are invested

68
Q

Market Value Weighted Index

A

Portfolio Index where $ amounts invested in each stock are proportional to the market value of outstanding shares (market cap size) of each stock

69
Q

Price Weighted Index

A

It is a portfolio index in which one share of each stock is included

FIN 307 (26 decks)

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