I Money Market II Bond Market Chapter 2 Asset Classes and Financial Instruments e EuroDollars bank time deposit d Bankers Acceptance a Treasury Bills T Bills An order to a bank by a customer to pay a sum of short term highly liid and relatively low risk debt instruments Short Term government securities issued at a Short Term Unsecured debt issued by large dollar denominated deposits at a foreign brancg of discount from face value and returning the face value at maturity b Certificates of Deposit CDs c Commercial Paper corporations money at afuture date American Banks securities with an agreement to repurchase at a higher price from the broker who borrows money from a bank The bank can call bak the money at any time h Federal unds al reserve London are willing to lend to themselves indiviual buying stocks on margin usually buys them i London Interbank Offer Rate LIBOR f Repurchase Agreement Repos Funds in the accoutns of commercial banks at the ferder Short Term sales of government is the rate at which large banks I g Brokers Call some government sponsored agencies issue own d Municipal Bods Munis a Treasury Notes Bonds debt obligations of the federal government treasury inflation protected securities are pegged to the CPI with maturities of 1 year or more b TIPS c Federal Agency Debt Debt FannieMae FreddieMac GinnieMAe government municipality are issued to finance particular projects and ii Revenue Bonds are backed by revenue from the project i e turnpikes ports airports hospitals Tax exempt bonds issed by state and local i General Obligation Munis backed by taxing power of iii No federal nor state taxes on the interest proceeds means lower Yields iv r rm 1 t taxable yield v rm r 1 t vi vii r total before tax rate of return available on taxable bonds viii r 1 t after tax rate available on those securities t combined federal and state tax rate ix rm rate on municipal bonds x t 1 rm r e Corporate Bonds typically paying semi annual coupons and returning the face value of the bond to the investor Long term debt issued by private corporations III Equity Securities i Debentures unsecured bonds a Common Stock b Preferred Stock Non voting shares in a corporation usually paying a ownership shares in a publicy held corporation Shareholders have voting rights and may receive dividends fixed stream of dividends Indicies prices of the stocks and dividing by a divisor i Price Weighted Average an average computes by adding the c 1 See how to compute price and weighted averages on example 2 3 page 40 ii Market Value Weighted Average Computed by calculating a weighted average of the returns of each security in the index with weights proportional to outstanding market value IV Derivatives Market a security with a payoff that depends on the price of other securities a Options before a specified date i Call Options the right to buy an asset at a specified price on or 1 Investor has a call option on a stock 100 if the stock trades over 100 in that time frame you can call the option and you make a profit ii Put Option on or before a specified expiration date the right to sell an asset at a specified exercise price b Futures Contracts agreed upon price at aspecified future date obliges traders to purchase or sell an seet at an i Futures Contracts obliges the long position to purchase the asset at the future price the call option merley conveys the right to purchase the asset at the exercise price
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