chapter 2 - Bodie Kane Marcus Essentials of Investments...

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Essentials of Investments Bodie • Kane • Marcus Chapter 2 Asset Classes and Financial Instruments
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Essentials of Investments Bodie • Kane • Marcus Major Classes of Financial Assets Fixed-Income Securities Money market instruments Bonds Equity Common stock Preferred stock Derivative Securities Options Futures
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Essentials of Investments Bodie • Kane • Marcus Markets and Instruments Money Market Short-term, Marketable, Liquid, Low risk Debt Instruments Capital Market Longer-term, Riskier Securities Long-term Fixed-Income Security (Bonds) Equity Derivatives
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Essentials of Investments Bodie • Kane • Marcus Money Market Instruments Treasury Bills (most marketable) Short-term government securities issued at a discount from face value and returning face value at maturity. Little risk; Very liquid (easily converted to cash at low transaction cost and price risk) Very active in the U.S., but not in Korea ( MSB ) Tax exemption at state and local level Certificates of Deposit (CDs) Highly marketable time deposit with a bank. Bank pays interest and principal only at the end of fixed term of the CD. CDs can be traded in the secondary market.
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Essentials of Investments Bodie • Kane • Marcus Money Market Instruments Commercial Paper (CP) Short-term (270 days) unsecured (no collateral) debt issued by large corporations. Yield depends on time to maturity and credit rating. Bankers’ Acceptances An order to a bank by a customer to pay a sum of money at a future date (typically within 6 months). When the bank endorses the order for payment as accepted, it assumes responsibility for ultimate payment to the holder: At this stage, the acceptance may be traded at the secondary market. Very safe; Used widely in foreign trade; Sell at discount.
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Essentials of Investments Bodie • Kane • Marcus Money Market Instruments Eurodollars US Dollar-denominated deposits at foreign banks or foreign branches of US banks escape regulation of FRB; considered illiquid than domestic but higher yield Most are for large sums and time deposits less than 6 months’ maturity. Repurchase Agreement (Repos, RPs) Short-term borrowing by government security dealers. Short-term (usually overnight) sales of government securities with an agreement to repurchase the securities at the slightly higher price: Very safe: Government securities as collateral. Term repo: The term can be 30 days or more. Reverse repo: The mirror image of Repo.
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Essentials of Investments Bodie • Kane • Marcus Capital Market - Fixed Income Instruments Treasury Notes and Bonds Long-term debt obligations of the government that make semiannual payments and are sold at or near par value. Inflation-Protected Treasury Bonds: Par-value (principal
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This note was uploaded on 12/13/2011 for the course MANAGEMENT 103 taught by Professor Mr.singh during the Spring '11 term at Aristotle University of Thessaloniki.

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chapter 2 - Bodie Kane Marcus Essentials of Investments...

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