Exam 2 Flashcards
(29 cards)
What are debt instuments?
bonds
What are equity instuments?
Stocks
Bonds have what kind of risk?
no risk
What is the return from bonds
coupon/principal and original interest payment
These bonds are issued by goverment; little or no risk; low return
treasury bonds
Issued by corporations; corporate rating determines riskiness (range from junk to AAA)
corporate bonds
Junk has high rate of return bc riskier
Issued by loval goverment; benefit federal tax exempt
municipal bonds
Certificate of ownership of a piece of company
stocks
Legal document used to borrow on a long tem base
bond
Why do companies issue bonds?
to collect debt
What kind of ownership is 1 owner
sole propietership
What kind of ownership is it when it is owned by millions of CS holders
corporation
what kind of ownership is it when there is a minimum of 2 owners
partnership
What is the return from stocks?
Dividends and capital gains
What’re the differences between stocks and bonds
S: wgeb selling, investor recieves $ frm other investor Dividends are not guarenteed Dividends grow/lower with comp B: maturity value is fixed at maturity, investor recieves FV from comp Interest payment is guarenteed Interest is fixed
Interest and stock prices move in
opposite directions
This type of risk is associated with being unable to sell the bond of a little known iissuer
liquidity risk
This type of risk if if the borrower won’t be able to pay back the principal or interest
default risk
This type of risk arises bc long term bond prices change more w interst rate swings than short term bond prices
maturity risk
What kind of interest rate stimulates the economy
lower interest rate so pl can buy more
If market interest rates increase, bond prices __
decrease
What are unsecured bonds issued with higher interest rates
debentures
T or F
if a bank uses annually compounding for savings accts, the nominal rate will be greater than effective annual rate (EAR)
F
T or F
If money has time value (k>0), the future value of some amount of money will always be more than the amount invested. The present value of some amount to be recieved in the future is always less than the amt to be recieved
T
