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1、Financial Marketsand Instruments,Chapter 2,Major Classes of Financial Assets or Securities,Debt Money market instruments Bonds Common stock Preferred stock Derivative securities,Markets and Instruments,Money Market Debt Instruments Derivatives Capital Market Bonds Equity Derivatives,Money Market Ins
2、truments,Treasury bills Certificates of deposit Commercial Paper Bankers Acceptances Eurodollars Repurchase Agreements (RPs) and Reverse RPs Federal Funds,Money Market Instrument Yields,Yields on Money Market Instruments are not always directly comparable. Factors influencing yields. Par value vs. i
3、nvestment value 360 vs. 365 days assumed in a year (366 leap year) Bond equivalent yield,Bank Discount Rate (T-Bills),Rbd = bank discount rate P = market price of the bill n = number of days to maturity,Bond Equivalent Yield,Cant compare T-bill directly to bond: 360 vs 365 days Return is figured on
4、par vs. price paid Adjust the bank discounted rate to make it comparable.,Bond Equivalent Yield: Sample T-Bill,Capital Market - Fixed Income Instruments,Publicly Issued Instruments US Treasury Bonds and Notes Agency Issues (Fed Gov) Municipal Bonds Privately Issued Instruments Corporate Bonds Mortga
5、ge-Backed Securities,Capital Market - Equity,Common stock Residual claim Limited liability Preferred stock Fixed dividends - limited Priority over common Tax treatment,Stock Indexes,Uses Track average returns Comparing performance of managers Base of derivatives Factors in constructing or using an I
6、ndex Representative? Broad or narrow? How is it constructed?,Examples of Indexes - Domestic,Dow Jones Industrial Average (30 Stocks) Standard & Poors 500 Composite NASDAQ Composite NYSE Composite Wilshire 5000,Examples of Indexes - Intl,Nikkei 225 & Nikkei 300 FTSE (Financial Times of London) Dax Re
7、gion and Country Indexes EAFE Far East United Kingdom,Bond Indexes,Lehman Brothers Merrill Lynch Salomon Brothers Specialized Indexes Merrill Lynch Mortgage,Construction of Indexes,How are stocks weighted? Price weighted (DJIA) Market-value weighted (S&P500, NASDAQ) Equally weighted (Value Line Inde
8、x) How returns are averaged? Arithmetic (DJIA and S&P500) Geometric (Value Line Index),Averaging Methods,Component Return A=10% B= (-5%) C = 20% Arithmetic Average .10 + (-.05) + .2 / 3 = 8.33% Geometric Average (1.1) (.95) (1.2)1/3 - 1 = 7.84%,Derivatives Securities,Options Basic Positions Call (Bu
9、y) Put (Sell) Terms Exercise Price Expiration Date Assets,Futures Basic Positions Long (Buy) Short (Sell) Terms Delivery Date Assets,Financial Marketsand Instruments,Chapter 2,Major Classes of Financial Assets or Securities,Debt Money market instruments Bonds Common stock Preferred stock Derivative
10、securities,Markets and Instruments,Money Market Debt Instruments Derivatives Capital Market Bonds Equity Derivatives,Money Market Instruments,Treasury bills Certificates of deposit Commercial Paper Bankers Acceptances Eurodollars Repurchase Agreements (RPs) and Reverse RPs Federal Funds,Money Market
11、 Instrument Yields,Yields on Money Market Instruments are not always directly comparable. Factors influencing yields. Par value vs. investment value 360 vs. 365 days assumed in a year (366 leap year) Bond equivalent yield,Bank Discount Rate (T-Bills),Rbd = bank discount rate P = market price of the
12、bill n = number of days to maturity,Bond Equivalent Yield,Cant compare T-bill directly to bond: 360 vs 365 days Return is figured on par vs. price paid Adjust the bank discounted rate to make it comparable.,Bond Equivalent Yield: Sample T-Bill,Capital Market - Fixed Income Instruments,Publicly Issue
13、d Instruments US Treasury Bonds and Notes Agency Issues (Fed Gov) Municipal Bonds Privately Issued Instruments Corporate Bonds Mortgage-Backed Securities,Capital Market - Equity,Common stock Residual claim Limited liability Preferred stock Fixed dividends - limited Priority over common Tax treatment
14、,Stock Indexes,Uses Track average returns Comparing performance of managers Base of derivatives Factors in constructing or using an Index Representative? Broad or narrow? How is it constructed?,Examples of Indexes - Domestic,Dow Jones Industrial Average (30 Stocks) Standard & Poors 500 Composite NAS
15、DAQ Composite NYSE Composite Wilshire 5000,Examples of Indexes - Intl,Nikkei 225 & Nikkei 300 FTSE (Financial Times of London) Dax Region and Country Indexes EAFE Far East United Kingdom,Bond Indexes,Lehman Brothers Merrill Lynch Salomon Brothers Specialized Indexes Merrill Lynch Mortgage,Constructi
16、on of Indexes,How are stocks weighted? Price weighted (DJIA) Market-value weighted (S&P500, NASDAQ) Equally weighted (Value Line Index) How returns are averaged? Arithmetic (DJIA and S&P500) Geometric (Value Line Index),Averaging Methods,Component Return A=10% B= (-5%) C = 20% Arithmetic Average .10 + (-.05) + .2 / 3 = 8.33% Geometric Average (1.1) (.95) (1.2)1/3 - 1 = 7.84%,Derivatives Securities,Options Basic Positions Call (Buy) Put (Sell) Terms Exercise Price Expiration Date Assets,Futures
