Financial Securities - PowerPoint PPT Presentation

Loading...

PPT – Financial Securities PowerPoint presentation | free to view - id: 1b001-ZmE3Y



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Financial Securities

Description:

Chapter 2. Financial Securities. Outline. Major assets traded. (ttp://finance.yahoo.com/?u) ... Yahoo $25 $30. 20. MSN. 100. 80. 1. Construction of Indexes ... – PowerPoint PPT presentation

Number of Views:698
Avg rating:3.0/5.0
Slides: 21
Provided by: McGrawHill299
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Financial Securities


1
Chapter 2
  • Financial Securities

2
Outline
  • Major assets traded. (ttp//finance.yahoo.com/?u)
  • Fixed income
  • Money market instruments
  • Bonds
  • Equity securities
  • Derivatives
  • Understanding Index
  • Different index
  • Construction of index

3
Markets and Instruments
4
Money Market Instruments

  • T(Treasury) bills
  • Short-term government debt security
  • Issued at discount from face value and returning
    the face value at maturity
  • Certificates of deposit
  • Time deposit with a bank
  • CD issued in denominations larger than 100,000
    are usually negotiable-sellable in the secondary
    market
  • Commercial Paper
  • Short term unsecured debt issued by large corp
    directly to the public.

5
Money Market Instruments

  • Bankers Acceptances
  • An order to a bank by a customer to pay a sum of
    money at a future date.
  • Like postdated check, with bank endorsement
  • Widely used in foreign trade
  • Sell at discount in secondary market
  • Eurodollars
  • denominated deposits at foreign bank or foreign
    branches of US bank
  • Can be traded in secondary market like CD before
    its maturity
  • Federal Funds
  • Deposits of banks at Fed
  • Used for reserve requirements and transaction
  • Banks with surplus lend to those with shortage
  • Not directly sold to investors

6
Money market instruments
  • Repurchases agreements and reverses
  • Def. Short-term sales of government securities
    with an agreement of repurchase at a higher price
    Reverse repo mirror image of a repo. Buys
    government securities with an agreement to resell
    them at a prespecified higher price
  • Q Who is who? A Seller of security (borrower of
    funds) vs. Buyer (lender)
  • Price increase is interest
  • Security is collateral

7
Bonds
  • Publicly Issued Instruments
  • US Treasury Bonds and Notes
  • Agency Issues (Fed Gov)
  • Municipal Bonds
  • Privately Issued Instruments
  • Corporate Bonds
  • Mortgage-Backed Securities

8
Equity
  • Common stock
  • Residual claim
  • Limited liability
  • Preferred stock
  • Fixed dividends - limited
  • Priority over common

9
Derivatives Securities
  • Options
  • Basic Positions
  • Call (Buy)
  • Put (Sell)
  • Terms
  • Exercise Price
  • Expiration Date
  • Assets
  • Futures
  • Basic Positions
  • Long (Buy)
  • Short (Sell)
  • Terms
  • Delivery Date
  • Assets

10
Define option
  • Option is the right to buy or sell an asset at a
    specified exercise price on or before a specified
    expiration date.
  • Call Option
  • Put Option
  • Check

11
Market and Exercise Price Relationships
  • In the Money - exercise of the option would be
    profitable (without considering the cost/premium
    of the option)
  • Call market pricegtexercise price
  • Put exercise pricegtmarket price
  • Out of the Money - exercise of the option would
    not be profitable
  • Call market priceltexercise price
  • Put exercise priceltmarket price
  • At the Money - exercise price and asset price are
    equal

12
Stock Indexes
  • Uses
  • Track average returns
  • Comparing performance of managers
  • Base of derivatives

13
Examples of Indexes - Domestic
  • Dow Jones Industrial Average (30 Stocks)
  • Standard Poors 500 Composite
  • NASDAQ Composite
  • NYSE Composite
  • Dow Jones Wilshire 5000
  • Included all stocks(over 5,000) traded in US with
    available data

14
Construction of Indexes
  • How are stocks weighted?
  • Price weighted (DJIA)
  • Market-value weighted (SP500, NASDAQ)
  • Equally weighted (Value Line Index)

15
Construction of Indexes
  • Price weighted

16
Construction of Indexes
  • Price-weighted average
  • Adding the price and divided by a divisor ( of
    stocks or adjusted divisor)
  • Index0(25100)/262.5
  • Index1(3080)/255

17
Construction of Indexes
  • Price weighted-adjusting for splits

18
Construction of Indexes
  • Price-weighted adjusting for splits
  • Calculate new index value without split effect(
    from time 0 to 1, stock prices can change without
    split effects)
  • index1(30100)/265
  • With split, index1 should also equal 65
  • (3050)/d65 d1.23
  • (3050)/1.2365
  • d is divisor

19
Construction of Indexes
  • Market value-weighted
  • The weight is based on the market value of each
    component stock
  • Set initial level to an arbitrarily chosen
    starting value (e.t. 100)
  • New level 100(new market value 700/old initial
    market value 600)116.67

20
Construction of Indexes
  • Equal weighted
  • Each stock has the same weight
  • Set initial level to an arbitrarily chosen
    starting value (e.t. 100)
  • The change of the indexthe simple average of
    the change of each component stock
  • change of Yahoo(30-25)/2520
  • change of MSFT(50-50)/500
  • change of index(200)/210
  • New level 100(1 change of the index)
  • 100(110)110
About PowerShow.com