Class Notes (837,355)
Canada (510,241)
Commerce (1,910)
Lecture 2

COMMERCE 3FB3 Lecture 2: chapter 2
Premium

4 Pages
77 Views
Unlock Document

Department
Commerce
Course
COMMERCE 3FB3
Professor
Jonathan Dushoff
Semester
Spring

Description
Chapter 2: Financial Markets and Instruments Major Classes of Financial Assets or Securities • Debt o Money market instruments o Bonds • Common stock • Preferred stock • Derivative securities o Options o Futures Markets & Instruments • Money Market o Short-term debt securities ▪ Treasury bills, etc. • Capital Market o Bonds (government and corporate) o Equities (common and preferred) o Derivatives (options, futures, swaps) The Money Market • Money Market o A subsector of the fixed-income market o Consists of very-short-term debt securities o Trade in large denominations • Instruments o Treasury Bills ▪ The most marketable of all Canadian money market instruments ▪ The government raises money by selling bills to the public ▪ Investors buy the bills at a discount from the stated maturity value ▪ The holder receives a payment equal to the face value at maturity o Certificate of Deposit (CD) ▪ A time deposit with a chartered bank ▪ The bank pays interest and principal only at the end of the fixed term ▪ Guaranteed Investment Certificate (GIC): a time deposit for smaller amounts ▪ Bearer Deposit Notes (BDNs): marketable CDs o Commercial Paper ▪ Issued by large, well-known companies ▪ Short-term unsecured debt notes ▪ Backed by a bank line of credit ▪ Rollover at maturity: issue new paper to obtain the funds necessary to retire the old paper o Bankers’ Acceptances o Eurodollars o Repos and Reverses ▪ Repurchase agreements (RPs) • The dealer sells government securities to an institutional investor on an overnight basis Buy back those securities the next day at a slightly higher price • ▪ Reverse repo • Tquestionso buy government securities from an investor and sell them back at a higher price on a future date Yields on Money Market Securities Calculating Money Market Yields Bond equivalent yield (BEY) • o Simple interest annualized rate • Effective annual yield o Compound interest annualized rate • Bank discount yield o As BEY but using 360 days and par value o The quoted yield for US T-bills EXAMPLE Consider a $1,000 par value T-bill sold at $990 with a maturity of a maturity of a half-year, or 182 days • Bond equivalent yield – annualized discount / purchase price r = [(1000 – P)/P] x 365 / n (e.g. $10 x (365/182) / $990 = 2.026%) • Effective annual yield – term yield compounded to annual rate r = [1 + (1000 – P)/P]T – 1 = (1000/P)T – 1 (e.g. [1 + ($10
More Less

Related notes for COMMERCE 3FB3

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit