I Major Classes of Financial Assets or Securities
II Markets and Instruments
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Money Market
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Treasury bills
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Certificates of deposit
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Commercial Paper
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Bankers Acceptances
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Repos (repurchase agreement by dealers usually for a day, backed by govt. securities)
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Brokers’ Call ( loan taken for margin borrowers by their brokers)
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Federal Funds (funds in the banks reserve account)
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Capital Market
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Bonds (fixed income)
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Equity
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Derivatives
III Capital Market – Fixed Income Instruments
Publicly Issued Instruments
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US Treasury Bonds and Notes (Listing of Issues: Explain Fig 2.4)
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Agency Issues (Fed Gov)
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Municipal Bonds
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International Bonds
Privately Issued Instruments
Example: The following are the quotes for 7.50 August 04n treasury bonds from The Wall Street Journal
Maturity
Rate Mo/Yr Bid Asked Chg. Ask Yld.
7.50 Aug 04n 102:21 102:23 +4 5.64
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How much does it cost to buy the bond?
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If you already own the bond, how much would a bond dealer pay you for it?
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By how much did the price change from the previous day?
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What annual interest payment does the bond make?
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What is the bond’s yield to maturity?
IV Municipal Bond Yields
Pages 35-37
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Common stock (explain fig 2.10)
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Residual claim
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Limited liability
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Preferred stock
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Fixed dividends - limited
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Priority over common
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Tax treatment
VI Uses of Stock Indexes
VII Factors for Construction of Stock Indexes -
Representative?
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Broad or narrow?
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How is it weighted?
VIII Examples:
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Dow Jones Industrial Average (30 Stocks)
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Standard & Poor’s 500 Composite
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NASDAQ Composite
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NYSE Composite
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Wilshire 5000
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Nikkei 225 & Nikkei 300
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FTSE (Financial Times of London)
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Dax (Germany)
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TSX (Canada)
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How are stocks weighted?
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Price weighted (DJIA)
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Market-value weighted (S&P500, NASDAQ)
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Equally weighted (Value Line Index)
X Derivative Securities -
Options
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Basic Positions
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Call (Buy)
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Put (Sell)
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Terms
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Exercise Price
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Expiration Date
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Assets
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Futures
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Basic Positions
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Long (Buy)
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Short (Sell)
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Terms
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Delivery Date
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Assets
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