SECURITIES AND FINANCIAL INSTRUMENTS

• Stocks


  Also known as equities, represent ownership in a corporation
• Bond


  A security that is issued in connection with a borrowing arrangement, where the borrower issues (i.e. sells) a bond to the lender for some amount of cash, and the bond is the "IOU" of the borrower. The issuer agrees to make specified payments to the bondholder on specified dates.
• Derivatives


  Includes Futures, options, and related derivative contracts that provide payoffs that depend on the values of other variables, such as commodity prices, bond and stock prices, interest rates, or market index values. These instruments are sometimes called derivative assets: A security with a payoff that depends on the prices of other securities.
• Characteristics and valuation of stocks

  • Earnings Per Share (EPS)
  • Price-to-Earnings Ratio (P/E Ratio)
  • Dividend Yield
  • Market Capitalization
  • Growth Potential
  • Debt Levels
  • Profitability and Margins
  • Management and Corporate Governance
• Earnings Per Share (EPS)


  A fundamental metric that indicates a company's profitability, calculated by dividing the company's net income by the number of outstanding shares. Higher EPS generally indicates better profitability.
• Price-to-Earnings Ratio (P/E Ratio)


  A common valuation metric that compares a company's current stock price to its earnings per share, giving investors an idea of how much they are paying for each dollar of earnings. A higher P/E ratio suggests potentially overvalued stock, while a lower P/E ratio may suggest undervaluation.
• Dividend Yield


  Represents the percentage of the stock's price that is paid out annually in dividends, calculated by dividing the annual dividend per share by the stock's current price. Stocks with higher dividend yields can provide income for investors, while those with lower yields might be more growth-oriented.
• Market Capitalization


  The total value of a company's outstanding shares of stock, calculated by multiplying the stock's current price by the total number of outstanding shares. Companies with higher market caps are typically more established and may be less volatile compared to smaller-cap companies.
• Growth Potential


  Investors often consider a company's growth potential when valuing its stock, including factors such as industry trends, product innovation, market share, and expansion opportunities. Companies with strong growth potential may command higher valuations.
• Debt Levels


  Evaluating a company's debt levels is crucial as excessive debt can increase financial risk. Investors often look at metrics such as debt-to-equity ratio to assess a company's leverage. Lower debt levels generally indicate a healthier financial position.
• Profitability and Margins


  Analyzing a company's profitability metrics such as gross margin, operating margin, and net margin provides insights into its efficiency and effectiveness in generating profits. Consistent and healthy margins are generally favorable for investors.
• Management and Corporate Governance


  The quality of a company's management team and its corporate governance practices can impact its long-term success. Investors may assess factors such as executive leadership, corporate strategy, transparency, and ethical standards.
• Types of bonds and their features

  • Treasury Notes and Bonds
  • Corporate bonds
  • Municipal bonds
  • Mortgage securities
• Treasury Notes are issued with original maturities ranging up to 10 years, while T-bonds are issued with maturities ranging from 10 to 30 years.
• Municipal bonds


  Issued by state and local governments, similar to Treasury and corporate bonds, except their interest income is exempt from federal income taxation.
• Municipal bonds


  • General obligation bonds are backed by the "full faith and credit" (i.e., the taxing power) of the issuer, while revenue bonds are issued to finance particular projects and are backed either by the revenues from that project or by the municipal agency operating the project
  • Industrial development bond is a revenue bond that is issued to finance commercial enterprises, such as the construction of a factory that can be operated by a private firm.
• Corporate Bonds


  The means by which private firms borrow money directly from the public, structured much like Treasury issues in that they typically pay semi annual coupons over their lives and return the face value to the bondholder at maturity.
• Corporate Bonds


  • Secured bonds, which have specific collateral backing them in the event of firm bankruptcy
  • Unsecured bonds, called debentures, which have no collateral
  • Subordinated debentures, which have a lower priority claim to the firm's assets in the event of bankruptcy
• Corporate Bonds with options

  • Callable bonds give the firm the option to repurchase the bond from the holder at a stipulated call price
  • Convertible bonds give the bondholder the option to convert each bond into a stipulated number of shares of stock
• Mortgage securities


  A mortgage-backed security is either an ownership claim in a pool of mortgages or an obligation that is secured by such a pool. Most pass-throughs traditionally comprised conforming mortgages, which meant that the loans had to satisfy certain underwriting guidelines (standards for the creditworthiness of the borrower) before they could be purchased.
• Derivatives


  Provide a means to control risk that is qualitatively different from the techniques traditionally considered in portfolio theory, and allow investors to change the shape of the probability distribution of investment returns.
• Options


  Options contracts are traded on several exchanges, written on common stock, stock indexes, foreign exchange, agricultural commodities, precious metals, and interest rates. A call option gives its holder the right to purchase an asset for a specified price, called the exercise or strike price, on or before some specified expiration date. In contrast, a put option gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date. Option prices also increase with time until expiration.
• Futures contracts

  Call for delivery of an asset (or, in some cases, its cash value) at a specified delivery or maturity date, for an agreed-upon price, called the futures price, to be paid at contract maturity. A call option is a right to purchase an asset at a stipulated exercise price on or before an expiration date. A put option is the right to sell an asset at some exercise price. Calls increase in value, while puts decrease in value, as the price of the underlying asset increases. A futures contract is an obligation to buy or sell an asset at a stipulated futures price on a maturity date. The long position, which commits to purchasing, gains if the asset value increases, while the short position, which commits to delivering the asset, loses.
• Unsecured Bonds


  It have a lower priority claim to the firm's assets in the events of bankruptcy
• Earnings Per Share (EPS) formula

  Company's net income divided by numbers of outstanding shares
• Price to Earnings Ratio Formula:

  Current stock price divided by earnings per share
• Dividend yield Formula:

  Annual divided per share divided by current stock price
• Market capitalization formula:

  Current stock price multiplied by total number of outstanding shares