Presentation_2-1_marked - Return predictability How...

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Key characteristics of securities Econ 230 Financial Markets and Institutions Prof. Cahill Fall 2009
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Key characteristics of securities Liquidity Marketability (moneyness) How easily can it be sold for cash? Divisibility/denomination What is smallest unit sold? May depend on transactions costs Reversibility What is cost of re-selling? Bid-ask spread: ask price – bid price You buy at ask, sell at bid
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Key characteristics of securities Term to maturity When is last payment made? Call provision: borrower may buy back security Put option: lender may demand funds back Cash flow When are payments made? Value affected by changes in inflation, real int. rates
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Unformatted text preview: Return predictability How predictable are cash flows? What is interest rate risk? Key characteristics of securities Convertibility Can the security be converted into stock (or another asset)? Essentially a call option on stock Complexity How many provisions does the security have? Options, restrictions, etc. Key characteristics of securities Tax treatment What is tax rate? Any special allowances? May depend on other characteristics Exchange rate/currency What is the currency the asset is denominated in? Foreign exchange cost, risk Eurodollar: U.S. dollar denominated assets outside of U.S....
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This note was uploaded on 02/19/2010 for the course ECON 1313212 taught by Professor John during the Spring '09 term at The School of the Art Institute of Chicago.

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Presentation_2-1_marked - Return predictability How...

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