Chapter 3 - Learning Objectives Price quotes for all types...

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Learning Objectives Price quotes for all types of investments are easy to find, but what do they mean? Learn the answers for: 1. Various types of interest-bearing assets. 2. Equity securities. 3. Futures contracts. 4. Option contracts. 3-1
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3-2 Security Types Our goal in this chapter is to introduce the different types of securities that investors routinely buy and sell in financial markets around the world. For each security type, we will examine: Its distinguishing characteristics, Its potential gains and losses, and How its prices are quoted in the financial press.
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3-3 Classifying Securities Basic Types Major Subtypes Interest-bearing Money market instruments Fixed-income securities Equities Common stock Preferred stock Derivatives Futures Options
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3-4 Interest-Bearing Assets Money market instruments are short-term debt obligations of large corporations and governments. These securities promise to make one future payment. When they are issued, their lives are less than one year . Fixed-income securities are longer-term debt obligations of corporations or governments. – These securities promise to make fixed payments according to a pre-set schedule. When they are issued, their lives exceed one year .
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3-5 Money Market Instruments Examples : U.S. Treasury bills (T-bills), bank certificates of deposit (CDs), corporate and municipal money market instruments. Potential gains/losses : A known future payment/except when the borrower defaults (i.e., does not pay). Price quotations : Usually, the instruments are sold on a discount basis , and only the interest rates are quoted. Therefore, investors must be able to do calculate prices from the quoted rates.
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3-6 Fixed-Income Securities Examples : U.S. Treasury notes, corporate bonds, car loans, student loans. Potential gains/losses : Fixed coupon payments and final payment at maturity, except when the borrower defaults. – Possibility of gain (loss) from fall (rise) in interest rates
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This note was uploaded on 11/18/2011 for the course FIN 355 taught by Professor Phsiao during the Fall '08 term at S.F. State.

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Chapter 3 - Learning Objectives Price quotes for all types...

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