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3-11. BA FM33P > Lesson 4: Investment in Capital Market > Flashcards

Lesson 4: Investment in Capital Market Flashcards

1
Q

Owned by relatively small number of shareholders

A

Private Companies

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2
Q

where private companies sell shares directly to a small number of institution or wealthy investors

A

Private placement

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3
Q

the national government regulatory agency charged with supervision over the corporate sector, the capital market participants, and the securities and investment instruments market, and the protection of the investing public.

A

Securities and Exchange Commission

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4
Q

provide an organized forum in which suppliers of funds and demanders of funds can transact business directly.

A

Financial Markets

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5
Q
  • publicly owned or public companies
  • can raise capital from a wide range of investors
A

Public Traded Companies

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6
Q

Types of Financial Markets

A
  • Direct Search Markets
  • Brokered Markets
  • Dealer Markets
  • Auction Markets
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7
Q

where buyers and sellers must seek each other out directly

A

Direct Search Markets

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8
Q

brokers provide search services to buyers and sellers

A

Brokered Markets

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9
Q

when the dealer purchase asset for their own account with the plan of selling them for a profit

A

Dealer Markets

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10
Q

all traders converge in one place to buy or sell an asset

A

Auction Markets

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11
Q

✓ Investors
✓ stock exchange/over-the-counter market
✓ RegulatoryAgencies
Securities and Exchange Commission (SEC) Philippine Stock Exchange (PSE)

A

Participants in the Secondary Capital Market

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12
Q

✓ Issuers
✓ InvestmentBanks
✓ Investors
✓ RegulatoryAgencies
Securities and Exchange Commission (SEC) Philippine Stock Exchange (PSE)

A

Participants in the Primary Capital Market

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13
Q

a function wherein an individual or institution undertakes the risk associated with a venture or an investment

A

Underwriting

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14
Q

determining the risk and price of a particular security

A

Underwriting

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15
Q

handle the orderly marketing and distribution of the securities to the intended public

A

Underwriters

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16
Q

guarantees the issuer that a specific amount of bonds shall be sold to investors

A

Underwriters

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17
Q

registration statement filed with SEC describing the issue and prospects of the issuer

A

Prospectus

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18
Q

organized to enable an underwriting firm and top executives/management to pitch sales to investors (sales pitch)

A

Road Shows

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19
Q

is a price discovery process used by investment bankers to determine the demand for an issuer’s initial offering of securities

A

Bookbuilding

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20
Q

large investors express their interest in purchasing securities

A

Bookbuilding

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21
Q

Specializes in helping firms raise capital by selling securities (bonds and stocks) Acts as underwriters.

A

Investment Banks

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22
Q

Certificate of debt issued by an entity

A

Bonds

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23
Q

Previously in paper/physical form, but now electronic or ___________.

A

scripless

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24
Q

The amount that is expected to be repaid to the bondholders upon maturity of the bond (can be in different currencies)

A

Face Value

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25
Q

How much investors are willing to pay/receive to buy/sell an outstanding bond

A

Price

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26
Q

Length of time of the duration of the obligation (settlement date up to maturity date)

A

Tenor

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27
Q

Interest rate paid by the bond issuer to the investors, usually quoted on an annual basis. Can be fixed or floating rate

A

Interest Rate

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28
Q

Date when bond proceeds (cash) gets transferred to the issuer in exchange for the bond holdings of the investors

A

Settlement Date

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29
Q

Date when the principal amount (face value) is repaid by the borrower to the bondholders

A

Maturity Date

30
Q

Frequency of coupon payments (annual, semi-annual, quarterly)

A

Coupon Frequency

31
Q

Total returns from holding a bond at any given time

A

Yield

32
Q

Who issues the bonds

A
  • Government bonds
  • Corporate bonds
  • Municipal bonds
33
Q

A dollar today is worth more than a dollar tomorrow

A

Time Value of Money

34
Q

The rate (usually quoted on annual basis) charged for lending money

A

Interest Rates

35
Q

Only the principal amount pays interest

A

Simple Interest

36
Q

Both the principal and interest amounts pay interest

A

Compound Interest

37
Q

Simple interest formula

A

FV = PV (1+rt)

38
Q

Compound interest formula

A

FV = PV (1+r/n)^nxt

39
Q

Debt security instrument that pays a variable interest rate linked to a financial index and adjusted periodically, typically every 3 to 6 months

A

Floating Rate Note

40
Q

Differs from a Fixed-rate Bond; interest rate not fixed at an absolute rate but “floats” with market rates, cannot be predetermined

A

Floating Rate Note

41
Q

graphically/visually represents yields on similar bonds across a variety of maturities

A

Yield Curve

42
Q

positive yield curve. Longer-term interest rates are higher than shorter-term interest rates

A

Normal Yield Curve

43
Q

the difference between long and short term interest rates is large

A

Steep Curve

44
Q

a small or negligible difference between short and long-term interest rates

A

Flat Yield Curve

45
Q

negative yield curve. Long-term interest rates are less than the short term interest rate

A

Inverted Curve

46
Q

Factors influencing yield curve

A
  1. Market forecasts and expectations
  2. Presumable Liquidity
  3. Market inefficiency
47
Q

Example: Find the price today of a 10-year bond assuming 1,000 in face amount, a coupon rate of 5% payable semi-annually, and having a current yield of 6%.
From the given details above, is the bond expected to be at a premium or discount?

Methodology:
1. List down all the cash flows of the bond
2. Calculate the appropriate discount factor
3. Add the present values of all the cash flows

A

Step 1:

FV x coupon rate / frequency 1,000 x 5% / 2 = 25

Step 2 & 3:

PV = Cash Flow / (1 + yield/n)^nxyear

48
Q

Formula of PH Capital Market

A

P = C (1-(1+i)^-n / i) + M (1+i)^-n

49
Q

Compute the price of a 9% coupon bond with 20 years to maturity and a face amount of P1,000 if the current market rate is 12%. Coupon is paid semi-annually.

A

Found in the ppt

50
Q

Interest earned on a debt instrument that has not been paid yet

A

Accrued Interest

51
Q

Price of a bond that includes accrued interest since last coupon payment

A

Dirty Price

52
Q

Price of a bond that does not include the accrued interest

A

Clean Price

53
Q

Formula of Accrued Interest

A

Accrued Interes = Face Value x (Coupon Rate / Coupon Frequency) x (Days since last coupon/Days between coupon payments)

54
Q

A five-year Php 1,000 par value bond pays a 6.5% annual coupon rate. Given a Yield to maturity of 8%, what is the price of the bond today?

A

Year1=65/[(1+8%)^1]=60.1852
Year2=65/[(1+8%)^2]=55.7270
Year3=65/[(1+8%)^3]=51.5990
Year4=65/[(1+8%)^4]=47.7769
Year 5 = 1,065 /[ (1 + 8%)^5] = 724.8211
Bond Price = Php 940.11

55
Q

What is the current yield on a bond that is worth Php 900 with a par value of Php 1,000 and a coupon rate of 10%?

A

Current yield = annual interest / net proceeds
= (1,000 X 0.10) / 900
= (100) / 900
= 11.11%

56
Q

A 6-year, Php 1,000 par value bond was issued last August 15, 2018. It pays a 5% semi-annual coupon rate and has Yield to maturity of 8%,
What is the accrued interest October 31, 2023?

A

Accrued interests = Php 1,000 x (0.05/2) x (days since last Coupon payment / Days between coupon payments)
= 1,000 x 0.025 x 77/180
= 10.7

57
Q

If a bond’s price increases, the yield decreases.

A

Premium

58
Q

If a bond’s price decreases, the yield increases

A

Discount

59
Q

For the Philippine government yield curve, the yield curve is called

A

BVL

60
Q

serves as the risk-free benchmark rate since government bonds have zero credit risk (direct government obligations)

A

BVL

61
Q

allow the issuer to redeem the bonds before maturity

A

Callable bonds

62
Q

bond proceeds allocated for green projects

A

Green Bons

63
Q

periodic repayment of principal

A

Amortizing bonds

64
Q

bonds that pay coupon that changes per repricing date (e.g. 3m, 6m)

A

Floating Rate Bonds

65
Q

bonds that pay a fixed rate throughout

A

Fixed Rate Bonds

66
Q

bonds that pay zero coupon but issued at a discount

A

Zero Coupon Bonds

67
Q

issued outside the country

A

External Bonds

68
Q

are measures of the return that can be earned on bonds.

A

Yield

69
Q

They may act as “market makers” in relevant markets

A

Investment Bans

70
Q

For large investors such as corporate pension funds, charities and private clients.

A

Investment management

3-11. BA FM33P (6 decks)

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