FINANCE 305 : ESSENTIALS OF INVESTMENTS
CHAPTER 1: Investments: Background and Issues.
REAL ASSETS – assets used to produce goods and services.
FINANCIAL ASSETS – claims on real assets or income generated by them.
FIXED INCOME (DEBD) SECURITIES – are securities that pay a specified cash flow over and specific period.
EQUITY – an ownership share in a corporation.
DERIVATIVE SECURITIES – securities providing pay offs that depend on the value of other assets.
AGENCY PROBLEMS – conflicts of interest between management and stockholders.
ASSET ALLOCATION – allocation of an investment across broad asset classes.
SECURITY SELECTION – choice of specific securities within each asset ...view middle of the document...
BUNDLING, UNBUNDLING – creation of new securities either by combining primitive and derivative securities into one composite hybrid or by separating returns of an asset into classes.
CHAPTER 2: Asset classes and Financial Instruments
MONEY MARKETS – include short-term, highly liquid and relatively low-risk debt instruments.
TREASURY BILLS – short-term government securities issued at a discount from face value and returning the face value amount at maturity.
CERTIFICATE OF DEPOSIT – a bank time deposit.
COMMERICAL PAPER – short term unsecured debt issued by large corporations.
BANKERS’ ACCEPTANCE – is an order to a bank by a customer to pay a sum of money at a future date.
EURODOLLARS – are dollar-denominated deposits at foreign banks or foreign branches of American banks.
REPURCHASE AGREEMENTS (REPOS) – are short-term sales of government securities with an agreement to repurchase the securities at a higher price.
FEDERAL FUNDS – are funds in the accounts of commercial banks at the Federal Reserve Bank.
LIBOR – lending rate among banks in the London market.
TREAURY NOTES OR BONDS – debt obligations of the federal government with original maturities of one year or more.
MUNICIPAL BONDS – tax-exempt bonds issued by state and local governments.
CORPORATE BONDS – long-term debt issued by private corporations typically paying semi-annual coupons and returning the face value of the bond at maturity.
COMMON STOCKS – ownership shares in a publicly held corporation. Shareholders receive voting rights and dividends.
PREFERED STOCK – nonvoting shares in a corporation, usually paying a fixed stream of dividends.
PRICE-WEIGHTED AVERAGE – an average computed by adding the prices of stocks and dividing by a “divisor”.
MARKET VALUE-WEIGHTED INDEX – it is computed by calculating a weighted average of the returns of each security in the index, with weights proportional to outstanding market value.
EQUALLY WEIGHTED INDEX – an index computed from a simple average of returns.
DERIVATIVE ASSET OR CONTINGENT CLAIM – a security with a pay off that depends on value of other securities.
CALL OPTION – the right to buy an asset at a specified price on or before a specified expiration date.
PUT OPTION – the right to sell an asset at a specified price on or before a specified expiration date.
FUTURES CONTRACT – obliges a trader to buy or sell an asset at an agreed-upon price at a specified future date.
CHAPTER 3: Securities market
PRIMARY MARKET – market for new issues of securities.
SECONDARY MARKET – market for already-existing securities.
INITIAL PUBLIC OFFERING (IPO) – first sale of stock by a formerly private company.
UNDERWRITERS – underwriters purchase securities from the issuing company and resell them.
PROSPECTUS – a description of the firm and securities it is issuing.
PRIVATE PLACEMENT – primary offerings in which shares are sold directly to a small group of institutional or wealthy investors
DEALER MARKETS – markets in which...