Chapter 3
Security Types
•
•
•
•
•
•
Classifying Securities
Interest-Bearing Assets
Equities
Derivatives
Options
Summary and Conclusions
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Classifying Securities
Classification of financial assets
Basic types
Major subtypes
Interest-bearing
Money Market instruments
Fixed income securities
Common stock
Preferred stock
Options
Futures
Equities
Derivatives
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Interest-Bearing Assets
• Money market instruments
• Basic features
• Examples
• T-bills
• Commercial paper
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Interest-Bearing Assets (continued)
• Fixed-income securities
• Basic features
• Examples
• Treasury bonds
• Municipal bonds
• Corporate bonds
• Mortgage-backs
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Wall Street Journal NY Bond Quotes
Bonds
ATT 6s09
ATT 8¼22
ATT 6½29
ATT 8½31
AlldC zr09
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Cur
Yld.
6.3
7.9
7.0
8.0
…
Vol. Close
10
95½ +
95 103¼ 107
92¾ +
167 107½ 5
48¾ -
Net
Chg.
5/8
3/8
1/8
5/8
3/8
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Corp Bond Quotes from WSJ on Friday, August 24,
2000
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Equities
• Common stock
• Basic features
• Classes of stock
• Preferred stock
• Basic features
• Is preferred really debt?
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Wall Street Journal Stock Quotes
52 Weeks
Hi
Lo
138¼ 55½
27¾ 26¼
45½ 32
59½ 35½
Stock
Sym Div
IBM
IBM 0.48
IBM pf
1.88
IntFlavor IFF 1.52
IntPaper IP 1.00
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Yld
%
0.3
7.0
3.40
1.9
PE
39
…
25
80
Vol
100s Hi
56457 139½
83 26¾
1947 45¼
25293 54½
Net
Lo
Close Chg
135¾ 137¼ +1/16
26
26
-1/16
44¼ 45
+3/16
51¼ 53
-1/2
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The New CNBC Ticker
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Derivatives
• Primary vs derivative assets
• An example: STRIPS
• Futures contracts
• Basic features
• Basic types
• Buying and selling
• Delivery
• Marking-to-market
• Potential gains and losses
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Wall Street Journal Futures Price Quotes
Open
High
Low
Settle
Change
Lifetime
High
Low
Open
Interest
July
Sept
Dec
Corn (CBT) 5,000 bu.; cents per bu.
179
180
178¼
178½
-1½
186
186½
184
186
-¾
196
197
194
196½
-¼
Sept
Dec
TREASURY BONDS (CBT) - $1000,000; pts. 32nds of 100%
117-05 117-21 116-27 117-05
+5
131-06 111-15 647,560
116-19 117-05 116-12 116-21
+5
128-28 111-06
13,857
Sept
Dec
DJ INDUSTRIAL AVERAGE (CBOT) - $10 times average
11200
11285 11145
11241
-17
11324
7875
11287
11385 11255
11349
-17
11430
7987
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312
280
291¼
177
184
194
2,837
104,900
175,187
18,530
1,599
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Options
• Calls
• Puts
• Basic features
• The contract
• The premium
• The strike price
• Potential gains and losses
• Stock sells for $100/share - buy 1 round lot
• Call option sells for $5 -- buy 20 contracts
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Wall Street Journal Option Quotes
Option/Strike Exp.
IBM
130 Oct
138¼
130 Jan
138¼
135 Jul
138¼
135 Aug
138¼
140 Jul
138¼
140 Aug
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--Call---Put-Vol. Last Vol. Last
364 15¼
107
5¼
112 19½
420
9¼
2365
4¾ 2431 13/16
1231
9¼
94
5½
1826
1¾
427
2¾
2193
6½
58
7½
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WSJ quotes for 8/24/00
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Problem 3-5
You found the following stock quote for DRK Enterprises, Inc.,
in the financial pages of today’s newspaper. What was the
closing price for this stock that appeared in yesterday’s
paper? How many round lots of stock were traded yesterday?
52 Weeks
Yld
Vol
Hi
Lo Stock Sym Div % PE 100s Hi
Lo
117 52½ DRK DRK 3.60 4.6 16 7295 81¾ 76
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Net
Close Chg
??? -3/8
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Problem 3-5 Solution
Yesterday’s Papers’ Closing Price:
Yld % = Div. / Closing Price
4.6% = 3.60 / Closing Price
Closing Price (today’s paper) = 3.60 / .046 = 78.26 = $78¼
Yesterday’s = $78¼ + 3/8 = $78
Round Lots:
Volume in 100s is 7295, so 7295 round lots or 729,500
shares were traded.
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Problem 3-6 Solution
In the previous problem, assume the company has five
million shares of stock outstanding. What was the
net income for the most recent four quarters?
Net Income:
P/E = Price / EPS = 16 and stock price = 78 ¼, so
16 = 78.25 / EPS
EPS = 78.25/ 16 = $4.89
so with 5 million shares outstanding,
Net Income = $4.89 x 5M = $24,450,000
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Problem 3-12
Suppose the following bond quote for ISU Corporation
appears in the financial pages of today’s newspaper.
If this bond has a face value of $1,000, what closing
price appeared in yesterday’s newspaper?
Bonds
ISU 7s11
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Cur
Yld
8.7
Vol
Close
10
???
Net
Chg
+1/2
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Problem 3-12 Solution
Yesterday’s close:
Interest = 7-7/8 = 7.875%
Interest payment = 7.875% x $1,000 = $78.75 annually
Current Yield = 8.7% = Interest payment / Bond price
8.7% = $78.75 / Bond price
Bond price = $78.75 / 8.7% = $905.17,
but prices are quoted as percent of par value, so
Yesterday’s price = 90.517 - 0.5 = 90.017
So yesterday’s price is $900.17
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Problem 3-13 Solution
In the previous problem, in what year does the bond
mature? If you currently own 25 of these bonds, how
much money will you receive on the next coupon
payment date?
The bond matures in 2011 (from the 11 after the “s”)
Coupon Payment:
Interest payment = $78.75 / 2 = $39.375 every six months
So 25 bonds will pay:
$39.375 x 25 = $984.38
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