Fin 310 Exam 2 CSU

Treasury Bill Maturity

Maturity

4 weeks, 13 weeks, and 26 week

Treasury Bill Par Value

Par Value

historically a minimum of $10,000 but now it is $1,000 and multiples of $1,000

Treasury Bill

Highly liquid due to short maturity and strong secondary marke

Treasury Bill Pricing

Priced at a discount from par, the price depends on the investors required rate of return

Buying Treasury Bills

Investors submit bids on options either competitively or noncompetitive

Money Market Security

Debt securities with a maturity of one year or less. Issued in the primary market. Can be sold on the secondary market and are liquid.

Commercial Paper

Short term deb issued by well known firms and are typically unsecured. Issued to create liquidity or to finance an investment in inventory and accounts receivable. Assigned a credit rating

Commercial Paper Denomination

$100,000

Commercial Paper Maturity

between 20-45 days. Can be as short as 1 day or as long as 270.

Credit Rating Agencies

Moody's, Standard & Poor's, and Fitch

Commercial Papers Buying and Selling

Firms place directly with investors or rely on commercial paper dealers who sell the commercial papers.

Commercial Paper Yield

Does not pay interest and is priced at a discount from par.

Negotiable Certificates of Deposit

Issued by large commercial banks and other depository institutions as a short term source of funds. Liquid because of secondary market

NCD Minimum Denomination

$100,000

NCD Maturity

Two weeks to one year

NCD Placement and Yield

Sometimes placed directly other times used correspondent institutions. Provide return from interest along with the difference between the purchase price and sale price

Repurchase Agreement

One party sells (buys) securities to another with an agreement to repurchase (sell) the securities at a specified date and price. Represents a loan backed by a security.

Repo Agreement Maturity

1 to 15 days or one, three, and six months

Repo Agreement Transaction

$10 Million

Repo Agreement Placement and Yield

Negotiated through telecommunication networks. Multiply by 360/N

Federal Funds

Enables depository institutions to lend and borrow short term funds from each other at the federal funds rate. The red Adjusts the amount of funds in depository institutions in order to influence the federal funds. Commercial banks are the most active playeers

Banker's Acceptance

Banks accept responsibility for a future payment. Commonly used for international trade transactions. Have an active secondary market.

Money Market Securities and Interest Rates

If short term interest rates increase, the required rate of return will increase and the price of MMS will decrease

Bonds

Long terms debt securities issued by government agencies or corporations. The issuer is obligated to pay interest (coupon) payments before maturity par value. Most have a maturity between 10 and 30 years. Bonds are issued in the primary market as wither bearer bonds or registered bonds

Institutional Participates in Bond Markets

Commercial banks, savings institutions, and finance companies issue bonds. Investors- Commercial banks, saving institutions, bond mutual funds, insurance companies and pension funds.

Bond Yield- Issuers Perspective

Commonly measured by the yield to maturity

Bond Yield- Investors Perspective

Holding periods return is used by bond investors that do not hold the bond until maturity. Yield consists of coupon payments and the difference between par value and the price of selling the bond

T-Bonds/Notes

Minimum denomination of $100, a bond maturity of less than 10 years, Note maturity more than 10 years. Receive semiannual interest payments. Interest is taxed by the federal government but no state and local.

Competitive Bids/ Noncompetitive Bids

Competitive- specify a price and a dollar amount of securities to be purchased. Noncompetitive- specify only dollar amount of securities to be purchased.

Corporate Bonds

Minimum denomination of $1,000. Maturity is between 10 and 30 years. Interest is tax deductible by the corporation but not for the investor.