CHP 2 K-1 b

INVESTMENT
ALTERNATIVES
CH 2
Organizing Financial Assets
Direct Investing
Investors buy and sell securities themselves, typically
through brokerage accounts.
Indirect Investing
The buying and selling of the shares of investment
companies which, in turn, hold portfolios of securities.
Investors owning securities indirectly through investment
companies such as mutual funds and exchange traded
funds.
1 Nonmarketable Financial Assets
Liquidity The ease with which an asset can be bought or sold quickly
with relatively small price changes.
2 Money Market Securities
Money markets include short-term, highly liquid, relatively low-risk
debt instruments sold by governments, financial institutions, and
corporations to investors with temporary excess funds to invest.
- The Treasury Bill A short term money market instrument sold at
discount by the U.S. government.
- Money Market Rates tend to move together, and most rates are very
close to each other for the same maturity. Treasury bill rates are less than
the rates available on other money market securities because of their
presumed risk-free nature
3. Capital Market Securities
The market for long-term securities such as bonds and stocks.
Fixed Income Securities is a securities with specified payment dates and
amounts,
primarily bonds.
Bonds.
Bonds can be described simply as long-term debt instruments representing
the issuer’s contractual obligation. Bonds are fixed-income securities because
the interest payments (for coupon bonds) and the principal repayment for a
typical bond are specified at the time the bond is issued and fixed for the
life of the bond.
BONDS
◦Bond Characteristics  Par Value (Face Value) The redemption
value of a bond paid at maturity.
◦Bond Prices
◦Accrued Interest
◦Discounts and Premiums
◦Callable Bonds  Call Provision Gives the issuer the right to call
in a security and retire it by paying off the obligation.
◦The Zero Coupon Bond  A bond sold with no coupons at a
discount and redeemed for face value at maturity.
TYPES OF BONDS
◦ Treasury Securities, The U.S. government, in the course of financing its operations
throughtheTreasuryDepartment,issuesnumerousnotesandbondswithmaturitiesgreaterthan 1year.
◦ Treasury Bonds, Treasury Notes Treasury securities with maturities up to 10 years
◦ GOVERNMENT AGENCY SECURITIES, Government Agency Securities Securities issued by federal
credit agencies (fully guaranteed) or by government sponsored agencies (not guaranteed)
◦ Mortgage-Backed Securities, (MBSs) Securities whose value depends upon some set of
mortgages.
◦ Municipal Bonds Securities, issued by political entities other than the federal government and
its agencies, such as states and cities.
◦ Corporate Bonds, Longterm debt securities of various types sold by corporations.
◦ Senior Securities Securities, typically debt securities, ahead of common stock in terms of
payment or in case of liquidation Debenture An unsecured bond backed by the general worthiness
of the firm.
◦ Junk Bonds, Bonds that carry ratings of BB or lower, with correspondingly higher yields
◦ Asset-Backed Securities (ABS), Securities issued against some type of assetlinked debts
bundled together, such as credit card receivables or mortgages
Equity Securities
1.Preferred Stock, An equity security with an intermediate

claim (between the bondholders and the stockholders) on a
firm’s assets and earnings.
2.Common Stock, An equity security representing the
ownership interest in a corporation.
4 Derivative Securities
Securities that derive their value in whole or in part by having a claim on

some underlying security. Options and futures contracts are derivative
securities, so named because their value is derived from their connected
underlying security. Numerous types of options and futures are traded in world
markets.
DIRECT INVESTING Type of Financial Assets
INDIRECT INVESTING
◦ Nonmarketable Savings deposits
Certificates of deposits
Investment Unit investment trust
Money market deposit accounts
Companies Open end
U.S. savings bonds
Money market mutual fund
◦ Money market Treasury bills Stock, bond, and income
Negotiable certificates of deposit funds
Commercial paper Closed end
Eurodollars Exchange-traded funds
Repurchase agreements
Banker’s acceptances
◦ Capital market Fixed income
Treasuries Agencies
Municipals Corporates
Equities
Preferred stock Common
stock
◦ Derivatives Options Future
contracts
Done
LOREM IPSUM DOLOR SIT NUNC VIVERRA IMPERDIET PELLENTESQUE HABITANT

AMET, CONSECTETUER ENIM. FUSCE EST. VIVAMUS A MORBI TRISTIQUE SENECTUS
ADIPISCING ELIT. TELLUS. ET NETUS.

CHP 2 K-1 b

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INVESTMENT

1.Preferred Stock, An equity security with an intermediate

Securities that derive their value in whole or in part by having a claim on

LOREM IPSUM DOLOR SIT NUNC VIVERRA IMPERDIET PELLENTESQUE HABITANT

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