FIN 4504 Lecture Notes - Lecture 2: Freddie Mac, Tax Rate, Municipal Bond
31 Aug 2016
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Fin 4504- equity and capital markets- lecture 2. The money market is a subsector of the debt market. > consists of very short term debt securities (<1 year) > highly marketable/highly liquid = easy to trade. Maturity: 4, 13, 26, or 52 weeks. Interest type: discount to face value (buy it at less than face value then receive full face value. Taxation: federal owed; exempt from state and local. > fixes two issues: 1) 365 days in a year & 2) fixes denominator to buying price. > rbey= 10,000-p/p x 365/n (,000 = par) Denomination: any, ,000 or more is marketable. Maturity: varies, typically 14-day minimum to 270-day maximum. Liquidity: cds of 3 months or less are liquid if marketable. Banks are beginning to issue cps, but usually corporations do. Maturity: maximum 270 days, usually 1-2 months (low risk b/c short term) Liquidity: cp of 3 months or less is liquid if marketable.
