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FI 301: EXAM 2
Key feature of MM security?
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Hold less than a year
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6 money market securities?
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Treasury Bill Repurchase agreement (repo)
Commercial Paper Federal Funds
Certificate of Deposit Banker’s Acceptance
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What are the 3 treasuries and their maturities?
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1. T-bill <1 year
T-note 1-10 years
T-bond 10+ years
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Treasuries have coupons?
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No coupons bought at a discount
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Coupons are paid (on all bonds)?
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Semiannually
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Cost for t-bill is called?
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Par value (bought 995 to 1000 a year later)
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What are unsecured notes also known as?
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Commercial paper
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Why are commercial paper 270 days or less?
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Don’t have to register with the SEC
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Why need for commercial paper?
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keep up with cash flow
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What firm went bankrupt and couldn’t pay its commercial paper?
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Lehman brothers
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What is the rate banks loan to each other?
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Federal Funds rate
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What is used for foreign trade transactions?
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Banker’s acceptance
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What is a repo (repurchase agreement) used for?
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So the Fed (and participating companies) can add money to the money supply (when they buy back at a higher rate)
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Which bank failed to pay repurchase agreement?
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Bear Stearns
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What are bonds?
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Investment in debt
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Who issues treasury bonds?
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1. Federal government
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1. Treasury bonds bought at (dutch) auction:
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Competitive bidding-submit a bid(therefore interest rate makers)
Non-competitive bidding-tell how much they want(therefore take the IR)
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What are IO/PO strips from treasury bond?
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1. IO-interest only
PO- principal only
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Municipal bonds
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1. county government bonds TAX EXEMPT (yields less)
They have more default risk b/c they must raise taxes (can’t print money)
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Junk bond
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lower-rated company or start-up (high risk higher yield)
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4 types of bonds?
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1. U.S. treasury, federal agency (mortgage fanny mae), municipalities, corporation
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Corporate bond
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unsecured-no asset
Secured-backed by asset
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Call provision?
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IR goes down, they can recall bonds
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Protective covenant?
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Ex. Won’t issue extra stock, limit bonuses to management
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Corporate bonds are ___ yield than treasury?
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Higher
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Fed agency bonds are?
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Mortgages bought by fannie mae and Freddie mac
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Bearer bond?
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Coupon physically attached to bond so whoever holds bond is owner
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What is a stock?
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An investment in equity
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How often are dividends paid?
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Quarterly
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Margin trading?
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buying stock with borrow money (debt) why? Higher return
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Margin call?
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Put more cash in account for collateral because it’s gone down in value
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Market order
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current market price
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Limit order
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set own price, but might not get it bought at that price
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Short-selling?
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Betting on price going down and selling others’ stock so must buy it back
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Ask price?
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sell at current price
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Bid price?
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buy at current price
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IPO?
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First issue of stock
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Secondary issue?
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More stock issue = diluted so price goes down
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Repurchase of stock?
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Increase stock value
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Flipping? |
Buy asset and sell relatively quickly for profit
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Flip after IPO?
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Makes price go down
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stops flipping IPO?
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Lock-up provision
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Preferred shareholders?
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Get paid dividend first
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Common shareholders?
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Have voting rights
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Circuit breakers?
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Cease trading on whole industry
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Trading halt?
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Stoppage of trade on a particular stock
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Mutual fund?
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Invest money for you
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Mutual funds are open ended?
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Meaning can issue shares whenever
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How often mut fund priced?
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Once daily
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What is name of price (mut fund)?
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NAV |
Why invest in mut fund?
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diversify
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Problems with mutual funds?
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Load fee –front-end=pay upfront, back-end=pay after
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ETF-
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traded between investors, less diversified, based on sectors (ex. Energy)
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why etf
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less fees
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REIT?
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1. Real estate investment trust
· Mortgage REIT-mortgages and MBS
· Equity-property is asset
· Hybrid REIT-prop and mort
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Hedge fund?
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Less transparent/regulation, need millions to enter, can’t exit at any time, management fee and 20% profit incentive
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What are the 4 types of savings bonds?
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1. EE-30,HH-20,I-inflation indexed, patriot-military spending
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Which is more risky: stock or bond?
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Bond b/c company can default on bond
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Dividends |
1. raise=good for investor; lower=bad b/c cash flow receding; same= good b/c stable with no new cost
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In 2004 DJIA(?) dropped:
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1. dropped: Alcoa, Bank of America, Goldman-Sachs
Added: Nike, Visa, Goldman-Sachs
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ask
bid |
ask-sell
bid-buy
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Money market fund-
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invest in short-term debt (ex. treasury bill or commercial paper)
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What is money market’s risk?
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1. Term-tie money up (no); liquidity-highly liquid(no) IR-no b/c year or less; default-yes
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Short sell
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1. selling stock hoping price drops
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Mutual fund types
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specialty-oil, transportation; index fund-s&p 500; multifund-invests in other mutual funds; tax-free-municipal bonds
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