Professional Documents
Culture Documents
INVESTMENTS
BBA
SPRING Semester 2012
Salaar - Finance
Investment
Alternatives
Salaar - Finance
Understanding Investments
Salaar - Finance
Salaar - Finance
Salaar - Finance
Salaar - Finance
Salaar - Finance
What are major types of Financial Assets? ORGANIZATION DIRECT INVESTING INDIRECT INVESTING Investment Companies Mutual Funds Stock, Bond Funds Unit Investment Trusts
Salaar - Finance
What are major types of Financial Assets? Direct Investing Non-Marketable Securities
Savings Deposits
Certificates of deposits
Money Market deposit accounts
US Savings Bonds DSCs & SSCs
Salaar - Finance
What are major types of Financial Assets? Direct Investing Money Market Securities
Treasury Bills
Salaar - Finance
Equities
Preferred Stock Common Stock
Salaar - Finance
What are major types of Financial Assets? Direct Investing Derivatives Securities
Options
Futures
Salaar - Finance
What are major types of Financial Assets? Direct Investing Non-Marketable Securities
Represent personal transactions b/w owner & issuer Safe investments insured by Govt.
Highly Liquid.
Savings Deposits Certificates of deposits
Salaar - Finance
Salaar - Finance
What are major types of Financial Assets? Direct Investing Money Market Securities
Money Market characteristics:
Tenor/Maturity? Size? Liquidity level? How do you invest into MM?
Treasury Bills
Salaar - Finance
What are major types of Financial Assets? Direct Investing Money Market Securities
Money Market: Market for short-term, highly liquid, low risk assets issued by govts, financial institutions, & corporations.
Size of transactions are usually large (> $100,000) Owned through MM Mutual funds due to large size Maturities (Tenor) usually b/w 1 day to 1 year
Treasury Bills Negotiable Certificates of Deposit Commercial Paper Eurodollars Repurchase Agreements Bankers Acceptances
Salaar - Finance
What are major types of Financial Assets? Direct Investing Money Markets Treasury Bills
Priced at what from face value? (FV = $10,000 min) Redeemed at ?
Salaar - Finance
What are major types of Financial Assets? Direct Investing Money Markets Treasury Bills
Priced at DISCOUNT from face value (FV = $10,000 min) Redeemed at Face Value
Salaar - Finance
What are major types of Financial Assets? Direct Investing M.M Treasury Bills
Discount Yield
Yield Calculations
NOTE: Pakistan T-Bills use 365 days, all other products use Money Market basis (360)
Salaar - Finance
What are major types of Financial Assets? Direct Investing M.M Treasury Bills
Discount Yield
Yield Calculations
IY = 15.02%
NOTE: Pakistan T-Bills use 365 days, all other products use Money Market basis (360)
Salaar - Finance
What are major types of Financial Assets? Direct Investing Money Market Securities Treasury Bills (IOU from Treasury, sold in secondary mkts) Negotiable Certificates of Deposit (against deposits, sold in
open markets, typical range 14-days till 1 year, Min size $100,000)
Bankers Acceptances
Time draft drawn on a bank by customer where Bank promises to pay a particular amount at specified date. These are negotiable & can be sold at discount in money markets. Used in international trade. Min size $100,000. Maturities range 30-180 days.
Salaar - Finance
ORGANIZATION
DIRECT INVESTING INDIRECT INVESTING Investment Companies Mutual Funds Stock, Bond Funds Unit Investment Trusts
Salaar - Finance
What are major types of Financial Assets? Direct Investing Capital Market Securities
Fixed Income (Bonds)
Treasuries
Agencies Municipals Corporates
Equities
Preferred Stock Common Stock
Salaar - Finance
What are major types of Financial Assets? Direct Investing Fixed-Income Securities
Capital Markets: Fixed-Income Securities:
Bonds:
Salaar - Finance
What are major types of Financial Assets? Direct Investing Fixed-Income Securities
Capital Markets: Where debt & equity capital is raised. Market for long-term
securities (stocks & bonds)
Bonds:
Long term debt instrument representing an IOU with a maturity. Called fixed income because they involve coupon (interest) payments with specified dates for the life of the Bond. Future stream of cash flows are known at issue. Principal is paid at maturity. IF, bond is sold before maturity, price will reflect current interest rates. Market interest rates affect Bonds price. Treasuries Agencies Municipals Corporates
Salaar - Finance
What are major types of Financial Assets? Direct Investing Fixed-Income Securities
Bond Characteristics
Par Value: Term Bond: Term to Maturity:
Coupon:
Coupon Rate: Zero Coupon:
Salaar - Finance
What are major types of Financial Assets? Direct Investing Fixed-Income Securities Bond Characteristics
Par Value: Also Face Value of most Bonds is $1000 paid at maturity
Quoted as a %age of Par Value. Corporations & Treasuries use 100 as conventional par rather than 1,000. So, Price 90 = $900 (90% of 1000). Each point, or a change of 1, represents 1% of 1,000 or $10. Easy conversion: since quoted in %age, just add an extra ZERO to get price. price as well as the interest earned (accrued)
Accrued Interest: Bonds trade on an accrued interest basis. Buyers pay the
Salaar - Finance
ORGANIZATION
DIRECT INVESTING INDIRECT INVESTING Investment Companies Mutual Funds Stock, Bond Funds Unit Investment Trusts
Salaar - Finance
What are major types of Financial Assets? Direct Investing Capital Market Securities
Fixed Income (Bonds)
Treasuries
Agencies Municipals Corporates
Equities
Preferred Stock Common Stock
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
Equity Security: Preferred Stock:
Common Stock:
Voting Rights:
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
Equity Security: Represents an ownership interest in a corporation.
After payment of all obligations to fixed-income claims, provides residual claim. b/w Bonds & common stocks. However, dividends may be deferred as cumulative and must be paid before common stock dividends.
Preferred Stock: Hybrid security: Pays dividends known in advance & falls Common Stock:
Represents ownership interest of corporations or Equity of stock holders (also called Equity securities) in the corp (n=outstanding shares). Entitled to income after all other claims are satisfied
Salaar - Finance
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
Common Stock Characteristics
Par Value: Book Value: Limited Liability: Market Value (Cap): Dividends: Dividend Yield: Payout Ratio: Retention Ratio:
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
stock usually sells for more than PAR.
Par Value: Not a significant economic variable. Any number can be chosen. New
Book Value: The accounting value of the equity as shown on the Balance Sheet.
Sum of Stock Outstanding, Capital in excess of Par & Retained Earnings.
Creditors
Market Value:
Dividends: Cash Payments declared & paid to stockholders Dividend Yield: 12 mth dividend / current stock price Payout Ratio: Dividends / Earnings (indicates % of a firms earnings paid out in
cash to stockholders)
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
Stock Example
Coca-Colas 2002 EPS = $1.23. Paid annual dividend DPS of $0.8. If price of KO is $45, calculate the following.
DY?
Payout ratio?
If the company reported $11.8 Billion in Stockholder Equity & the outstanding shares are 2.478 Billion, whats the BVS?
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
Stock Example
Coca-Colas 2002 EPS = $1.23. Paid annual dividend DPS of $0.8. If price of KO is $45, calculate the following.
If the company reported $11.8 Billion in Stockholder Equity & the outstanding shares are 2.478 Billion, whats the BVS?
BVS = 11.8 / 2.478 = $4.76
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
More Common Stock Characteristics
Stock Dividend:
Stock Split:
P/E Ratio:
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
More Common Stock Characteristics
Stock Dividend: Payment of a dividend in the form of stock (instead of cash)
Salaar - Finance
What are major types of Financial Assets? Direct Investing Equity Securities
More Common Stock Characteristics
Stock Dividend: Payment of a dividend in the form of stock (instead of cash)
Salaar - Finance
Salaar - Finance
ORGANIZATION
DIRECT INVESTING INDIRECT INVESTING Investment Companies Mutual Funds Stock, Bond Funds Unit Investment Trusts
Salaar - Finance
What are major types of Financial Assets? Direct Investing Derivative Securities
Derivative: Options (Rights)
Salaar - Finance
What are major types of Financial Assets? Direct Investing Derivative Securities
Derivative: Securities that derive their value from some underlying asset
Options (Rights)
The right (but not the obligation) to buy or sell a stated number of shares of stock within a specified time at a specified price CALL: An option to BUY a specified no. of shares at a specified price within a specified period. PUT: An option to SELL a specified no. of shares at a specified price within a specified period Trade on organized exchanges & are standardized products
Salaar - Finance
What are major types of Financial Assets? Direct Investing Derivative Securities
Options Characteristics (Equity)
Size: Exercise (Strike) Price: Maturity:
Salaar - Finance
What are major types of Financial Assets? Direct Investing Derivative Securities
Options Characteristics (Equity)
Size: Typically 100 shares of common stock Exercise (Strike) Price: The price at which the option is exercised. Maturity: The date when the option expires.
Buyers of Calls:
Buyers of Puts: Are betting the stock price will drop Option Writers: Receive a premium for betting on a certain view.
Options Value: Based on maturity, interest rates, volatility of stock px, & strike
price.
Salaar - Finance
What are major types of Financial Assets? Direct Investing Derivative Securities
Futures contract (Obligation)?
Salaar - Finance
What are major types of Financial Assets? Direct Investing Derivative Securities
Futures contract (Obligation)
Agreement which provides for the future exchange of an asset at a specified price on a specified date.
Used for hedging & speculation Hedger can lock in a future price in advance (reduce uncertainty)
Salaar - Finance
Salaar - Finance
END