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Financial Securities

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Mortgage-Backed Securities. Classes of Financial Assets. Treasury Notes and Bonds ... Mortgage-backed Securities. Figure 2.9 Mortgage-backed. Securities Outstanding ... – PowerPoint PPT presentation

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Title: Financial Securities


1
Chapter 2
  • Financial Securities

2
Classes of Financial Assets
  • Financial assets can be classified as
  • ______________________ market securities
  • ______________________ market securities
  • _____________________ securities

3
Classes of Financial Assets
  • Money market securities are sometimes referred to
    as ____________ equivalents.
  • Examples of money market securities

4
Classes of Financial Assets
  • Capital market securities include
  • Debt (bonds)
  • Equity
  • Common stock
  • Preferred stock
  • Bonds and preferred stock are referred to as
    fixed income securities

5
Classes of Financial Assets
  • Derivative securities
  • Options
  • Futures

6
Classes of Financial Assets
  • Bond Market
  • US Treasury Bonds and Notes
  • Agency Issues (Fed Gov)
  • Municipal Bonds
  • Corporate Bonds
  • Mortgage-Backed Securities

7
Classes of Financial Assets
  • Treasury Notes and Bonds
  • Notes maturities up to ________ years
  • Bonds maturities in excess of ________ years
  • 30-yr T-bond
  • 2001, Treasury suspended sales
  • Sales resumed in 2006
  • Par value 1,000
  • Quotes of par

8
Federal Agency Debt
  • Major issuers
  • Federal Home Loan Bank
  • Federal National Mortgage Association
  • Government National Mortgage Association
  • Federal Home Loan Mortgage Corporation

9
Municipal Bonds
  • Issued by state and local governments
  • Types
  • General obligation bonds
  • Revenue bonds
  • Maturities range up to 30 years

10
Municipal Bond Yields
  • The interest rate on munis is lower than the
    interest rate on comparable taxable bonds. Why?

11
Corporate Bonds
  • Issued by private firms
  • Semi-annual interest payments
  • Subject to higher _________________
  • risk than Treasury securities
  • Options in corporate bonds
  • callable (most)
  • Convertible (some)

12
Mortgages and Mortgage-backed Securities
  • Developed in the 1970s to help liquidity of
    financial institutions
  • Proportional ownership of a pool or obligation
    secured by a pool
  • Market has experienced very high rates of growth
  • Recent problems in the ______________ market

13
Figure 2.9 Mortgage-backed Securities Outstanding
14
Capital Market - Equity
  • Common stock
  • Residual claim
  • Limited liability
  • Preferred stock
  • Fixed dividends
  • Priority over common stock
  • Tax treatment

15
Uses of Stock Indexes
  • Measure of ______________ performance
  • ________________________ to evaluate investment
    performance
  • Base of derivatives

16
Factors for Construction of Stock Indexes
  • Representative?
  • Broad or narrow?
  • How is it weighted?

17
Examples of U.S. Stock Indexes
  • Dow Jones Industrial Average (30 Stocks)
  • Standard Poors 500 Composite
  • NASDAQ Composite
  • NYSE Composite
  • Wilshire 5000

18
Construction of Indexes
  • How are stocks weighted?
  • Price weighted (DJIA)
  • Market-value weighted (SP500, NASDAQ)
  • Equally weighted (Value Line Index)

19
Relative performance of Stock market indexes
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