Lecture 9 Financial MarketsLoose ends-Loanable funds equilibrium-ImplicationsBonds-Characteristics-Two principles-Default riskStocksWilson 3012-5 pm chem. auditorium Sundayall rotunda principles will be on the examSavers: Households, ForeignersBorrowers: Firms and GovernmentsBridge: Financial Marketsways: direct finance&indirect financeDirect finance Indirect finance1. Debt-Bonds(like I own you money contract) Banks2. Equity-StocksBonds, Brian (need money, and sign an “I own you money” contract), Maria buy the contract, sheis buying the bondThree key details:1. borrower 2. date of maturity3. value at maturity: par valueTwo bond price principles (owe 8000)1. Dollar price dictates rateR=(10,000-8,000)/8000=25%price R10,000 09000 11.11%8000 25%Key question: Will borrower default 10,000, yes!!80001 no!!tings agencies-moody’s-Standard&Poor’sRating indicates default
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