fin 325 cht 2

what are marketable finacial assets

bonds

equity

derivative

bonds

debt onliations of compaines fixed and floating

equity

owneerhsip share of a firm common stock

derivative securities

Value is calculated based on other assets options futures forwards, and swaps

money market securities

have a maturity of 1yr or less could include t bills commmercial paper bankers acceptances CDs repurchase agreements

capital market securitirs

are stock and bonds have a maturirty of greater than 1 yr

money markets

shor highly liquid that sell on a discount baiss tend to be low risk

t bills

US Treasury debt is referred to as a risk-free security because it is auctioned. regularly by US treasury income earned is tax ecempt

CDs

certificates of deposit insured thru the FDIC at a banking institution

major bond tyoes

US govt securities gov agencies municipal securities and corporate bonds

treasuery notes and bonds

Obligations of the federal government. Notes have less than 10yrs o maturity, and bonds have more than 10 years

Income from T-notes and T bonds is exempt form state and local taxes

treasury strips and when coupon payment are split into strips and sold as a claim to a portion of the cashflow stream

bond chracteristics

Face value of a bond = par of the bond the bonds calue will approach face value the closer the bond is to maturity. a bond is worth exactly its face par value at maturity

bond values depend on current intrest rates v the bonds coupon rate bond prices move inversly with intrest rates

bond premium vs discount

Accrued interest is the amount of interest owed since the last coupon payment.

callable bonds

Provisions in the bond that allow the issuer to call the bond from an investor.

when market rates drop sufficiently below the current coupon on the bond the issuer can cal the higher-rate bond in and isue a new lower rate bond to the market

corporate bonds

debt of companies. igher up in the capital structure which means debt holders recive priorit when a defult or bankruptcy happens

bond ratinings

Agencies are hired to evaluate the probability of default, which is then translated into a rating. in reality, there can be a lot of flaws with ratings

municipal bonds

Debt issued by state and local governments. interest is exempt from federal taxation and possibly state and local taxes too

returns on municipal bonds are calculated using a taable equivalent yield

shows an investor the interest rate taxable bond would have to pay an investor to make the bond equivalent on an after tax basis

equity securityes

ownership intrest in comapany with voring rights and limited liability

perferred stock

Hybrid security features both debt and equity takes priority for repayment after debt holders but before common equity holders in a case of default or bankruptcy

common stock

resifual clamis on income assets

Dividends

Are usually declared and paid quarterly. To receive a dividend, you must be the holder of record at a certain date

cash payment to shareholers

declaration date

date company agrees and announces to pay dividend

ex div date

day prior to the holder of record date right to div leaves stock

holder of recod date

decided by company

payament date

Physical payment will be made

stock splits create additional shars not additional vale

derivatie securities

value is derived from another security