COMMERCE 2FA3 Chapter Notes - Chapter 1: Risk Premium, Paul Reuter, Fixed Income
8 Mar 2014
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Chapter 1: the financial landscape: why do we need financial markets, capital markets and securities, where do corporations fit in, regulation (ch. If there is no risk, it depends on: the interest rate. If there is risk, it depends on cost of capital: which includes a risk premium. Funds transfer example: you have opportunity to invest 000, you will have 000 at the end of year. Is this a good investment: return = 11 000/10 000 1 = 10% Interest = 8: therefore this is a good investment because you can do better investing rather than keeping money in bank. Instead if you put it in bank at 8% interest savings you will earn less on this basis it"s a good investment. For now we pretend that there is no risk: capital markets and securities. Assets and securities: assets vs. securities, real assets produce goods and services, financial assets represent clains to cash flows arising from production.
