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BUS 315 Ch02.pdf

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Business Administration
BUS 315
Robert Grauer

CHAPTER 2 Financial Markets and Instruments Limited  011 McGraw-Hill Ryerson ©   2-2 ius far   i  easured er are tres ti   ea  he a et ig  ields  h  or com  ow uce e and ro  h   n  ec ssary ot d ng Securities  ummary   di  arkets   ve: ypan, ti t ec di d •ooBonydsuiteicerivatve • • • • Limited Chhaappt•errecurity ©011 McGraw-Hill Ryerson 2-3    inancial  f iti  nstruments kt ecur stockcurities i t S   ar  toc   la ses t MonBeonds • • Limited Ma Ajtr •ebt •om •re•nrri 011 McGraw-Hill Ryerson © 2-4 . ,tc )  waps)  ills  orreferred  )  nd  utures, Treassury  nd  ‐ (options, Instruments  ebt common        ar‐etm arketovernment uities Shoort Bon Eds Derivatives Money Capital• • Limited Ma arrketts • ©011 McGraw-Hill Ryerson 2-5   osit p    e  nd  earer )  REPOs)  nd Instrumentsosit   p  IBOR  e lo  f  aper  l  greements  ills AccearsnceREPOs  arket  BDNs)   ol   ll TreCsuNtfcaseBmaercrRleRerLimited Mo onneyy • • • • • ©011 McGraw-Hill Ryerson   2-6  arket  oney on   Yields   es  .1 i ecur Limited TaibSle ©011 McGraw-Hill Ryerson     2-7 various of    nderstandingred  re  eatures  or  he  ielBonds how •    nd  eminder  ntroduceerial  ecurities  o  arkets  ypcoming    he MooneeyEquItdecesrivative Suummm maObjsecurity • • • ©011 McGraw-Hill Ryerson •   2-8 not      re  eap  ields  366 aear Instrumentsle  n    a  nstrument  ields  arket  ssume ield  omparab nvestment vs.  ays Market  oney    65   on  ire tlylencvs.)  quivalent    a   Par360 yeaBond Yields Fayctors• • Limited Mo onneeyy • • ©011 McGraw-Hill Ryerson 2-9    ate  ate  nnu li  d  iel nnu lized  ie alue  nterest interestal     Yields  quivalent  iscountpar   Simple CComppoo36d0 Biill Bond Effectiv Bank ‐ • • • Limited T ©011 McGraw-Hill Ryerson 2-10 8  n t 3600ra 90  t 98060   P $   scoun Rate 000 ,$=80   0000k di  000 1 bn k diTbitl1t  = = number ofdaysto mat 1 Discount rD rDP n = market price of the T-bill   rD ‐ill ) Example Limited Ban(k  011 McGraw-Hill Ryerson © 2-11 n -ill 3665 T 90  l 36 P  -ill amp980  ield S  P ig 980 ,000 s ,00 1 :Ui1 S l T  l  BYY EquivalentY=price of rhe T   P np EieumftheoTf days to maturity0828 = 8.28% BEY r Limited Boondd ©011 McGraw-Hill Ryerson   2-12  BEY  aid aakee  o and  rice rBD vs.  ate     Yield  ar    n discount compare       ays  o  igu edk  65  s the  quivalent tl  s   360Return Impdoissitle A AdjusstaraLimited Boonndd • •  011 McGraw-Hill Ryerson ©   n 2-13 BD   rD  s:  ields (  quivalent yiel 365    ond 360 365  isc nnt  annualn BEY   /  ank r rEY  ields  n quoted 36655    ffetive  f  re (  uoted formula:e  ‐ils    re    hatrff Tills  ote   Limited Eqquiiva•len•ceaad•qnuva•lsoce ©011 McGraw-Hill Ryerson 2-14 t   rumen  onds t agencies)  ‐ It t    ecurities    ns ruments  nstruments  onds  ov rnment onds ‐acked Market  ssuedds  ssued   Icome d •an•ro•iunici•or•or•tertonael xe Publicly Privately Limited Cap F tald • • ©011 McGraw-Hill Ryerson 2-15   Canadian   ts Rt    en illrk 2.3d    n d on Limited FigBrde ©011 McGraw-Hill Ryerson 2-16  al rotected) ons p  orpcoutes  onds  n    inflation  f risk  convertible,   annual ‐  eturn •efa•elt•pt•onal Limited Feeatturress  011 McGraw-Hill Ryerson © 2-17        f  f a     ool  ates Backed  iquidity a ‐ y  igh  elp  oo   o  f  ery crisis) Mortgage  ecured      970s and the ation ‐rime   in  wnersh xperienced    nstitu ions
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