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REVIEW
○ CHAPTER 1
Assets: real assets vs financial assets
○ Fin assets: stocks and bonds
Derivatives: options tp buy stocks
○ Value goes up or down : this will affect price of the
Equity: classic definition: ownership , means common stocks
Finance: means trying to figure out risk and return
Security analysis
Asset pricing: whats the right price
Management of your money: ex: pension, mutual funds
Primary and secondary markets:
CDS: credit default swap: insurance against bond failures << know definition
○ Treated like a security
CHAPTER 2
○ Overview of whole financial systems: discuss capital markets : raising money
■ Purpose of raising money: bc of marketing , they're interested in the
company and investing in the company
■ YOURE CATERING TO DIFFERENT MARKETS: and its cheaper
to borrow money than anything else, so they borrow a lot
■ To catering to different needs
○ Cost benefit analysis
○ Capital bonds
■ Raising money through (2 ways)
■ Equity
■ Fixed income (debt, bonds)
○ They're all debt, they just have different names, and who issues it, different risk,
different taxation
■ Issued by big bank: called negotiable CD
○ Treasury bills
○ Corporate: short term debt
○ Banks: short term: CD
○ Interest bonds: municipal bonds
■ Issued by city or state
■ 98.5% of munis are tax free NOT ALL
■ Taxable rate equals municipal rate divided by 1 minus tax rate
○ Most major bond issues are not collatoral: bench bond
○ Derivatives: most important is OPTIONS (when your buying an option, youre
buying time)
■ Options are the right to buy a stock at a specific price for a specific period
of time
■ Put option: Right to sell a stock
■ Call option: youre buying contract: to buy time
■ If price goes up, call option is worth more
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Another way to raise money: equity
■ Stocks are equity
Margins: what you put up, not what you bought: no margins?
Short sale
Inside trading is illegal: information that is not publicly known
TIPS: treasury inflation asset protection security
■ Just for inflation,
■ Theres 5 yr tips, 10 yr tips, 2 yr tips, etc
■ 10 yr tip pays close to 1%
■ Difference btwn 10 year conventional and a tip: 1% (see above) plus
whatever the inflation rate
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Net asset value
Closed end: limited number of shares, usually sell at discount
Turnable rate
Zero coupon bonds
Catastrophe bonds: high interest rate
Index bonds
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9:
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10
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11
Initial margin of 65%
C
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16
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17
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D
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A
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225-liabilities: D
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A
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After tax so A
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300-5 divided 9 million:
■ D
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Small premium: false
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False
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False
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18
31
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32
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33
PE ratio: about safety
Yield on 10 yr treasury bond is 2.4%, next year rates are much higher
This means that most long term bond prices increased: FALSE
Short term rates go up, this tends to decrease value of the __: TRUE
10 yr TIP has .4%, and regular 10 yr convential: 2.6%, this means expected inflation is 3%:
FALSE
Index funds v popular today bc they almost never lose money: FALSE
Coupon for zero copon: usually $10 a year:
Bring calculator