Bucharest University of Economics
Finance Department
Capital markets
Course in the Ist semester, IInd year,
Seminar 1 - Introductory
Seminar valuation:
- 15% Test 1
- 15% Test 2
- Attendance and activity at least 4 presences
- Attendance at tests – compulsory.
The seminar’s grade will contribute with 30% to the final grade.
Seminars’ structure:
1. Introductory concepts
2. Bonds valuation
3. Shares valuation
TEST 1
4. Futures and options
5. Portfolios. Return and risk
6. Informational efficiency
TEST 2
Capital markets
This course and seminar will allow you to acquire the knowledge necessary for understanding the capital
markets and the portfolio investments.
Shares: financial instruments attesting the right of property on a part of the capital of the company that issued the
shares.
Bonds: financial instruments attesting the amount borrowed by a company from investors and its obligation to pay
back the debt at a certain moment in time and to offer remuneration called coupon.
Face value, principal value or denomination (valoare nominala) vs. market value (valoare de piata).
The bond price is quoted as a percentage of the denomination.
There are three main types of bonds: floating-rate bonds, income bonds, and deep-discount bonds.
The conventional bonds have fixed obligations. That is, the coupon rate is set as a fixed percentage of the par
value.
With floating-rate bonds, the coupon payments are adjustable. The adjustments are tied to an interest-rate index
such as the Treasury-bill interest rate or the 30-year Treasury-bond rate.
A bond that pays no coupon must be offered at a price that is much lower than its face value. Such bonds are
known as original-issue discount bonds, deep-discount bonds, pure-discount bonds, or zero-coupon bonds.
They are frequently called zeros for short.
Capital market
The first time the firm sells shares to the general public is called the initial public offering, or IPO.
A new issue of securities increases both the amount of cash held by the company and the amount of stocks or bonds held by
the public. Such an issue is known as a primary issue and it is sold in the primary market. But in addition to helping
companies raise new cash, financial markets also allow investors to trade stocks or bonds between themselves. Such
purchases and sales of existing securities are known as secondary transactions and they take place in the secondary market.
Return and real return
If you buy an asset of any sort, your gain (or loss) from that investment is called the return on your investment. This return
will usually have two components. First, you mayreceive some cash directly while you own the investment. This is called the
income component of your return. Second, the value of the asset you purchase will often change. In this case, you have a
capital gain or capital loss on your investment.
Exercises
1. An investor bought on Jan. 1st 200 shares at the price of 25 monetary units per share. He receives dividends of 200 m.u.
On June, 30 th he sells the shares for:
A) 205 m.u. per share
B) 198 m.u. per share.
Compute the anual return on this opperation. Compute rhe real return on this operation knowing the consumer price index
was 102%.
2. An investor bought 200 deep-discount bond for 10000 m.u. At the end of the 4 years representing the maturity of the
bonds, he gets 700 m.u. for each bond. Please compute the real annual return of the operation knowing that the consuper price
index on the period was 105% each year.