Glossary – Financial Markets & Institutions ________________________________________ A advances A bank’s borrowings from the Federal Reserve System. Also known as discount loans. adverse selection The problem created by asymmetric information before a transaction occurs: the people who are the most undesirable from the other party’s point of view are the ones who are most likely to want to engage in the financial transaction. agency theory The analysis of how asymmetric information problems
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Text Problem Sets A1. (Bond valuation) A $1‚000 face value bond has a remaining maturity of 10 years and a required return of 9%. The bond’s coupon rate is 7.4%. What is the fair value of this bond? Number of years (N) = 10‚ future value (FV) = 1000‚ interest rate (I/YR) = 9 0.074 * 1000 = 74 = PMT or annual payment‚ I then pressed CPT on my financial calculator to compute the price of the bond and then pressed PV or present value. The fair value of the bond is $897.32. Using Cash Flow of
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debenture because the particular assets are kept without any financial limitations so that the option is open for issuing them in future for financial purposes. Debentures and Bonds The Debenture has some similarities with Bonds but the terms and conditions of securitization of Debentures are different from that of a bond. A debenture is regarded as an unsecured investment because there are no pledges (guarantee) or liens available on particular assets. However‚ a debenture is backed by all the
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a five-year coupon bond with a face value of $1000 paying an annual coupon of 15%. (i) If the current market yield is 8%‚ what is the bond’s price? (ii) If the current market yield increases by 1% what is the bond’s new price? (iii) Using your answers to part (i) and (ii) ‚ what is percentage change in the bond’s price as a result of 1% increase in interest rates. Q.2 Consider the following FI balance sheet: M. Match Ltd Assets | Liabilities | 2 –year Treasury bond $175‚000 | 1-year
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etc) Capital market debt: long term bonds‚ can be safe or risky (Treasury bonds‚ municipal bonds‚ corporate bonds‚ etc) Bond ratings: in terms of default risk‚ from very safe to junk Common Stock and Derivatives Common Stock is equity or ownership in a corporation. Derivatives 1-5 Payments to stockholders are not fixed‚ but depend on the success of the firm Value derives from prices of other securities such as stocks and bonds Used to transfer risk (hedge)
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In Australia‚ investor can choose from a wide variety of investments which include managed investment schemes (MIS) and direct investment which consist of shares‚ debt and hybrid securities. Each investment scheme will a set of corporation act to protect its investor‚ as it is important to make investors feel confident and secure. Investors can choose the types of investments to invest in depending on their personal traits and ambition as the different investment contains different characteristic
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objective of this article is to describe the approaches of credit risk measurement that are developed by different researchers during the past 20 years. Then‚ Altman and Saunders are carrying out their new approach‚ which may suitable for loans and bonds for risk
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Visit Free Slides and Ebooks : http://downloadslide.blogspot.com CHAPTER 16 Dilutive Securities and Earnings Per Share ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics 1. Convertible debt and preference shares. Warrants and debt. Share options‚ restricted share. Earnings Per Share (EPS)—terminology. EPS—Determining potentially dilutive securities. EPS—Treasury share method. EPS—Weightedaverage computation. EPS—General objectives. EPS—Comprehensive calculations. EPS—Contingent shares. Convergence
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shares were worth $115. During the year a dividend of $2.58 was paid. Inflation during the year was 1.9%. What was the investor’s total real return on this stock? Select one: a. 32.63% b. 33.25% c. 32.18% d. 13.26% Sensation Limited issues bonds with a $1‚000 face value that make coupon payments of $40 every three months. What is the coupon rate? Select one: a. 0.4% b. 4% c. 8% d. 16% You examine two stocks. Battery City has a beta of 1.7‚ Bottlers Inc. has a beta of 2.6. Bottlers
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markets facilitate borrowing and lending by facilitating the sale by newly issued financial assets. Examples of financial markets include the New York Stock Exchange (resale of previously issued stock shares)‚ the U.S. government bond market (resale of previously issued bonds)‚ and the U.S. Treasury bills auction (sales of newly issued T-bills). A financial institution is an institution whose primary source of profits is through financial asset transactions. Examples of such financial institutions include
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