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Asset Classes and Financial Investments
Asset Classes and Financial Investments
Asset Classes and Financial Investments
and Financial
Investments
McGraw-Hill/Irwin Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Major Classes of Financial Assets or
Securities
• Money market
• Bond market
• Equity Securities
• Indexes
• Derivative markets
2-2
The Money Market
• Treasury bills
– Bid and asked price
– Bank discount method
• Certificates of Deposits
• Commercial Paper
• Bankers Acceptances
2-3
The Money Market Continued
• Eurodollars
• Repurchase Agreements (RPs) and Reverse
RPs
• Brokers’ Calls
• Federal Funds
• LIBOR Market
2-4
Figure 2.1 Rates on Money Market Securities
2-5
Table 2.1 Major Components of the
Money Market
2-6
Figure 2.2 Treasury Bill Yields
2-7
Figure 2.3 The Spread between 3-month
CD and Treasury Bill Rates
2-8
The Bond Market
2-9
Treasury Notes and Bonds
• Maturities
– Notes – maturities up to 10 years
– Bonds – maturities in excess of 10 years
– 30-year bond
• Par Value - $1,000
• Quotes – percentage of par
2-10
Figure 2.4 Lisiting of Treasury Issues
2-11
Federal Agency Debt
• Major issuers
– Federal Home Loan Bank
– Federal National Mortgage Association
– Government National Mortgage
Association
– Federal Home Loan Mortgage Corporation
2-12
Municipal Bonds
2-13
Figure 2.5 Tax-exempt Debt Outstanding
2-14
Municipal Bond Yields
2-15
Table 2.2 Equivalent Taxable Yields
Corresponding to Various Tax-Exempt
Yields
2-16
Figure 2.6 Ratio of Yields on Tax-Exempt
to Taxable Bonds
2-17
Corporate Bonds
2-18
Mortgages and Mortgage-Backed
Securities
2-19
Figure 2.7 Mortgage-backed Securities
Outstanding, 1979-2007
2-20
Equity Securities
• Common stock
– Residual claim
– Limited liability
• Preferred stock
– Fixed dividends -limited
– Priority over common
– Tax treatment
• Depository receipts
2-21
Figure 2.8 Listing of Stocks Traded on
the NYSE
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Stock Market Indexes
2-23
Dow Jones Industrial Average
2-24
Example 2.2 Price-Weighted Average
2-25
Standard & Poor’s Indexes
2-26
Other U.S. Market-Value Indexes
• NASDAQ Composite
• NYSE Composite
• Wilshire 5000
2-27
Figure 2.9 Comparative Performance of
Several Stock Stock Indexes, 2001-2006
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Foreign and International
Stock Market Indexes
• Nikkei (Japan)
• FTSE (Financial Times of London)
• Dax (Germany)
• MSCI (Morgan Stanley Capital International)
• Hang Seng (Hong Kong)
• TSX (Canada)
2-29
Derivatives Markets
Options Futures
• Basic Positions • Basic Positions
– Call (Buy) – Long (Buy)
– Put (Sell) – Short (Sell)
• Terms • Terms
– Exercise Price – Delivery Date
– Expiration Date – Assets
– Assets
2-30
Figure 2.10 Trading Data on GE Options
2-31
Figure 2.11 Listing of Selected
Futures Contracts
2-32