WEEK 5

• Bonds


  a promise by the bond-issuer to pay some specified amounts in the future in exchange for some payment (the bond price) today
• Stocks


  legal rights of ownership in an incorporated firm Promise the stockholder a share of the corporate profits (dividends)
• Money Market - Used by government and corporate entities to borrow and lend in the short term. The assets are held for one year or less
• Capital Market - Used for long-term securities that have a direct or indirect impact on the capital. The assets have maturities of greater than one year. It include the equity market and the debt market.
• Financial Markets – it brings buyers and sellers together to trade in financial assets
• Individuals - Sometimes called retail investors, individual traders can buy single stocks and bonds, as well as mutual funds and exchange-traded funds (ETFs)—pooled investments made up of a diverse mix of stocks, bonds, and/or other assets.
• Producers of goods, services, or raw materials - comes to markets to trade. Examples are individual farmers looking to hedge or sell crops to companies that mine metal or pump crude oil
• Fund managers - portfolio managers of mutual funds and ETFs that many of us hold in our retirement savings accounts are buying and selling these fund.
• Banks - trade on behalf of retail and institutional clients, make loans, issue debt for clients, exchange currencies, and engage in a host of other activities
• Insurers - invest the premiums they receive from customers and generally line it up with the asset that best reflects the type of insurance policy they sell. (Ex. premiums from a life insurance policy would be invested in a long-term asset.)
• Endowments - Large charities and university endowments invest their assets in markets to generate long-term investment income to support their goals
• Pension funds - The fund managers invest in markets on behalf of their retirees to ensure they can pay benefits over the long run
• Hedge funds - are limited partnerships and can invest in both public and private securities using a range of strategies
• Broker - person who acts as intermediary between a buyer and seller of stocks, usually charging a commission
• Dealer - refers to an individual or firm acting as a principal in a securities transaction
• Yield to maturity is the most accurate measure of interest rates
• Yield to maturity is the total rate of return earned when a bond makes all interest payments and repays the original principal.
• Future value is used for planning purposes to see what an investment, cashflow, or expense may be in the future
• Simple loan: you borrow today and pay the principal plus the interest in the future
• Fixed payment loan: you borrow today but make equal payments per time period until your loan is all paid
• Coupon bond: firm sells the bond (borrows the funds) pays the interest per period and at the maturity date pays the principal, too.
• Discount bond: Firm sells the bond at less than face value at the maturity date.
• Simple loan; provides the borrower with an AMOUNT of funds that must be rapid to lender at the MATURITY DATE along with an ADDITIONAL AMOUNT known as interest payment
• Fixed-payment loan; provides a borrower with an amount of funds that is to repaid by making the SAME MONTHLY PAYMENT
• Coupon bond, pays the owner of the bond a YEARLY FIXED interest payment until the maturity date, when a specified final amount (FACE VALUE) is repaid
• Discount bond; is BOUGHT at a price

  BELOW its FACE VALUE and the face value is repaid at the maturity date