Investment Analysis Chapter 2 Flashcards

Hoffman

Asset Classes

1. Fixed Income (Bonds) - money markets (>1 year), capital markets (<1 year)

2. Equity (Stocks)

3. Derivatives (Options)

Money Market

• short term, matures in less than a year, so people are always willing to trade

• low risk, issued by government/strong companies, so default risk is small

• highly liquid

• All of above makes it highly marketable (easy to buy/sell quickly without losing value) debt securities (lend money and get interest in return)

• traded in large denominations, so out of reach for individual investors

marketable

easy to buy/sell quickly without losing value

U.S. Treasury Bills

• Super marketable

  • matures in 4-52 weeks

  • highly liquid

  • no risk

• federal government borrows money when they need it buy selling T Bills to public

• DISCOUNT interest type

  • If TBill face value 1k, government sells for 970, at maturity government pays back 1k, interest=30

• exempt from state/local tax, federal tax owed

• Denomination: commonly 10k, min 100

Asked price 

higher price dealer will SELL t bill for

Bid price

lower price dealer will BUY t bill from you for