FIN 4243 Lecture Notes - Lecture 1: Money Market, Preferred Stock, Financial Instrument
29 Aug 2016
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Current commitment of money or other resources in expectation of future benefits. Expect to benefit from that sacrifice later. Example: students investing time/money in college to get degree & good job. Real assets : used to produce goods and services. Ex: property, plants and equipment, human capital, piece of paper, computer etc (company"s goodwill, patent, mba degree) Financial assets : claims on real assets or claims on real-asset income & can"t exist w/o real assets. Preferred stock (hybrid): belongs to debt, so bankruptcy doesn"t matter b/c it is paid earlier. Common stock (equity): purchase from stock market. Ownership stake in entity, residual cash flow. Contract, value derived from underlying market condition. Financial assets may be more liquid and have more transparent pricing since they are traded in well-functioning markets. All financial assets (owner of the claim) are offset by a financial liability (issuer of the claim). When all balance sheets are aggregated in the economy, only real assets remain.
