Financial Markets Financial Assets-claim on the property

Financial Markets • Financial Assets-claim on the property or income of the borrower • Financial Intermediary-institution that helps channel funds from savers to borrowers--banks, finance companies, life insurance, pension • Mutual Fund-pools the savings of many and invests in a variety of stock/bonds, ect

More Terms • Diversification-spreading your investments • Portfolio-a collection of financial assets • Prospectus-an investment report to potential investors • Return-$ an investor receives above and beyond the sum initially invested

Bonds • Low Risk Investments • Gov’t or corps repay the investor a fixed amount of interest at regular intervals • Coupon Rate-interest rate that the issuer will pay the holder • Maturity-the time at which payment is due • Par Value-face value or principal • Yield-annual rate of return

Bond Ratings • • • AAA-Highest grade AA-High Grade BBB-Upper Medium BB-Lower Medium B-Speculative CCC-Vulnerable to Default CC-Debt rated C-In debt D-In default

Types of Bonds • Savings Bonds-buy a bond get the return a the maturity date • Treasury Bonds, Bills and Notes (T-Bills) • Municipal Bonds-Finance internal improvements-roads, schools • Corporate Bonds-Big Time $$-at least 10 k • Junk bonds-Cheap, high risk but can offer high returns

Other Types • CD’s-certificates of deposit • Money Market Funds

The Stock Market • Benefits– Dividends – Capital Gains

Types of Stock • Income Stock-dividends at regular times during the year • Growth Stock-no dividends-reinvest • Common Stock-voting members • Preferred Stock-don’t vote but get dividends before others

Stock Splits • Each single share splits into more than one share • Why? • Price becomes so high that others wont buy more • Encourages new investors

Risks + Trading • • • Firm may earn lower profits Smaller dividends Price may decrease Stockbrokers Brokerage Firms-charge fees for all business

Charles Schwab • Big Time Broker

Stock Exchanges • Markets for buying stocks • NYSE – Largest market – Only large well established companies (Blue Chip) • NASDAQ-gets lots of the other stocks – Over the Counter

Futures and Options • Futures – Contracts to buy or sell in the future-pay some now the rest later • Options – A choice to buy or sell at a fixed price for a limited time – Call Option-to buy – Put Option to sell • Daytrading-make dozens of trades a day hoping to earn profit

Measuring Stock Performance

Measuring Stocks • Dow Jones Industrial Avg—measures the ups and downs (daily) of 30 large companies • S&P 500 -measures 500 companies • Bull Market-Rising • Bear Market-Falling