Or 40 31 3 429 31 4 5 Bond Market Instruments Federal Agency Debt issued by

Or 40 31 3 429 31 4 5 bond market instruments federal

This preview shows page 96 - 114 out of 118 pages.

Or 40% 3%/(1-.3)= 4.29% 3%/(1-.4) = 5%
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Bond Market Instruments Federal Agency Debt –issued by Federal Government Agencies Primarily mortgage related FHLB, FNMA, GNMA, FHLMC Backing is IMPLICIT rather than GURANTEED
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Bond Market Instruments Corporate Bonds- debt instrument issued by PRIVATE companies and which have specified collateral backing them (cash flow or assets) Interst rate risk vs credit risk
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Bond Market Instruments MBS - A debt instrument with a pool of real estate loans as the underlying collateral. ABS -A debt security backed by notes or receivables against assets other than real estate (i.e., auto loans,credit cards, student loans).
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Bond Market Securitization is the financial practice of pooling various types of contractual debt such as residential mortgages, commercial mortgages, auto loans or credit card debt obligations (or other non-debt assets which generate receivables) and selling their related cash flows to third party investors as securities , which may be described as bonds, pass-through securities, or collateralized debt obligations (CDOs). Investors are repaid from the principal and interest cash f lows collected from the underlying debt and redistributed th rough the capital structure of the new financing. Securities backed by mortgage receivables are called mortgage-backed securities (MBS), while those backed by o ther types of receivables are asset-backed securities (ABS).
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MBS Securitization
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Asset Backed Securities (ABS)
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Bowie Bonds An asset-backed security which used the current and future revenue from albums recorded by musician David Bowie as there underlying asset Bowie bonds, issued in 1997, had an interest rate of 7.9% and a life of 10 years. Eventually lead to the securitization of a lot of revenue streams that should not have been securitized!!
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Financial Instruments Money Market Bond Market Equities Derivatives
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Equities Common Stock Preferred Stock Depository Receipts (ADR)
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Equities Common Stock - represents ownership in a corporation Holder gets right to vote on corporate governance matters and share in financial benefit (ie dividends etc) Represents a RESIDUAL claim in the event of liquidation Limited Liability
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Common Stock
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Equities Preferred Stock- equity ownership with fixed income like characteristics (ie dividend) Promises to pay holder FIXED STREAM OF INCOME (DIVIDEND) Dividend is typically cumulative Preference over equity holders, but subordinate to bond holders in a liquidation No voting power Attractive to corporations because of tax treatment
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Equities Depository Receipts (ADR)- certificates traded in the U.S. representing ownership in SHARES OF A FOREIGN COMPANY
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EQUITIES
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Stock and Bond Market Indexes
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Stock and Bond Market Indexes Uses Track Returns Benchmark for performance measurement Base of derivatives
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Stock and Bond Market Indexes Stock Market Indexes DJIA- widely quoted but not widely used S&P 500- widely used but should it be?
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