Tài chính doanh nghiệp - Chapter 2: Financial instruments

Chapter 2Financial InstrumentsMajor Types of SecuritiesDebt Money market instruments BondsCommon stockPreferred stockDerivative securitiesMarkets and InstrumentsMoney MarketDebt InstrumentsDerivativesCapital MarketBondsEquityDerivativesMoney Market InstrumentsTreasury billsCertificates of depositCommercial PaperBankers AcceptancesEurodollarsMoney Market Instruments (Cont.)Repurchase Agreements (RPs) and Reverse RPsFederal FundsBrokers’ CallsLIBOR MarketBond Markets US Treasury Bonds and Notes Agency Issues (Fed Gov) International Bonds Municipal Bonds Corporate Bonds Mortgage-Backed SecuritiesMunicipal Bond YieldsInterest income on most municipals is not subject to taxTo compare the yields on municipals to other bonds use equivalent taxable yield (municipal return) / (1 – tax rate)Or solve for the tax rate that equates the two yields Tax rate = 1 – (municipal rate/taxable rate)Capital Market - EquityCommon stockResidual claimLimited liabilityPreferred stockFixed dividends - limitedPriority over commonTax treatmentStock Market IndexesUsesTrack average returnsComparing performance of managersBase of derivativesFactors in constructing or using an Index Representative? Broad or narrow? How is it constructed?Examples of Indexes - DomesticDow Jones Industrial Average (30 Stocks)Standard & Poor’s 500 CompositeNASDAQ CompositeNYSE CompositeWilshire 5000Examples of Indexes - InternationalNikkei 225 & Nikkei 300FTSE (Financial Times of London)DaxRegion and Country IndexesEAFEFar EastUnited KingdomBond IndexesLehman BrothersMerrill LynchSalomon BrothersSpecialized IndexesMerrill Lynch MortgageConstruction of IndexesHow are stocks weighted?Price weighted (DJIA)Market-value weighted (S&P500, NASDAQ)Equally weighted (Value Line Index)How returns are averaged?Arithmetic (DJIA and S&P500)Geometric (Value Line Index)Averaging Methods Component Return A=10% B= (-5%) C = 20% Arithmetic Average [.10 + (-.05) + .2] / 3 = 8.33% Geometric Average [(1.1) (.95) (1.2)]1/3 - 1 = 7.84%Derivatives SecuritiesOptionsBasic PositionsCall (Buy)Put (Sell)TermsExercise PriceExpiration DateAssetsFutures Basic PositionsLong (Buy)Short (Sell)TermsDelivery DateAssets