Financial Securities (Week 3)

Question 1

What is a financial asset?

Answer 1

A financial asset is a contractual claim to a stream of cash flows. Example s include cash, bank deposits, shares, loans, etc.

Question 2

What is a financial security?

Answer 2

A financial security is a financial asset that is tradable. Examples include (tradable) shares, bonds, derivatives, etc.

Question 3

What is securitisation?

Answer 3

The process of making assets tradable.

Question 4

Equation for (annual) rate of return on a financial security is:

Answer 4

Question 5

A stock was priced at 25 at the begining of the year, paid 2 pounds in dividends and finished the year at price 35.

What is the annual rate of return?

Answer 5

R(t+1) = (2+35-25)/25

= 12/25

=0.28

= 48%