FIN 501 Chapter Notes - Chapter 4: Preferred Stock, Common Stock, Current Yield
Document Summary
Financial assets can be grouped into three broad categories, and each can be subdivided into few major subtypes. Distinctions can become blurred because some financial instruments are hybrids, meaning they are combinations of the basic types. Some interest-bearing assets pay interest implicitly and some pay explicitly, but the common denominator is that the value of these assets depends on interest rates. They pay interest because they all begin life as a loan so they are all debt obligations of some issuer. Types of interest-bearing assets: money market instruments: debt obligations of large corporations and governments with an original maturity of one year or less. Bank of canada sells t-bills on a discount basis bi-weekly; other instruments include bank certificates of deposit (cds) and corporate, provincial and municipal money market instruments. Potential gain from money market instrument is fixed because the owner is promised a fixed future payment and has relatively low risk.
