Economics

Monday, November 30, 2009

9:57 PM

Chap 1 Interest Rate上 Money supply 下

Private placement is the simplest form of direct finance. True Bond price 下

Chapter 2 Coupon Rate上 Bond value 不确定

Foreign exchange involves spot future forward or option transaction. True

Most important duty of Federal Reserve: monetary policy supervision. True

Economic models are utilized to forecast future interest rate level. True

Chap 3 Stocks---Equity=Ownership (Shareholders have voting right)

Increasing price level increases the purchasing power of money. (Because of inflation) False
Bonds---Creditors-------Coupon Rate+ Mature Date+ Intention
Nominal rates reflect anticipated inflation. True名义利率

Nominal rate includes real rate and premium for the inflation.

Chap 4
Interest rate and money supply tend inversely in short term. True

Chap5 Bond
As the IR rise, the bond price will go higher. False (should down)
Coupon rate rise inversely with bond values. False.
Coupon rate equals the market rate, bond is likely to be selling at Discount, Par, Premium? Par
Coupon rate>market rate, bond will sell at Premium
Coupon rate< market rate, bond will sell at Discount
Zero coupon bond has no reinvest risk. True

Chap 6

Three bond risks: reinvestment, price, maturity/default risks.

Bond is convertible( in PAR), $1000 total, $40/share-- 25 shares

20% stock dividend?---additional 25 * 20%=5 shares.
After receiving the dividend, what is the new price of the share? 1000/25+5=33.33

A convertible bond at $50 per share, selling at market at $120(*10shares=1200), at what price
would the stock be selling at PARITY?---$40
1000/25=40

A 10% bond purchased at $800, (trading at discount), what's the yield to maturity? 12.5%
800 becomes 1000, 1000/800

Purchase 4.5% bond at discount and hold the bond to maturity, what's yield of maturity? D
Discount means the yield of maturity would be higher.
A.3.5 B. 4 C.4.5 D.5

Chap 7 Option
In Call option of bond, maturity date approaches----decrease the price the investor has to pay.

Call option is an option contract which the holder has the right to sell the number of shares of the
underlying security that is covered by the contract by a fixed price for a fixed period of time.
False (buy)

Type of underwriting where the issue is withdrawn if the entire amount is not sold---all or none
offering.

The price at which the customer would buy security at secondary market----(buy the) ask price

Regular days an option settles: next day settlement (three days is a stock)

Chap 8 Market Order

The type of order that becomes a market order when a round lock (=100) to trade at a particular
price is called Stop Order.
Out lock is below 100
Common stock holders have the last claim in liquidation.

Owners of corporation: Common stockholder.

Yield of a bond increases by half of percent--- 50 basis.

Selling at 97.08, ---1/4---2.50 ; 970+2.50=972.50 (Government Bond)

b 32

On sep 15th, Thursday, purchase regular settlement, interest 10% paid in six months, from June,
Tuesday Sept 20th is the pay day, should be calculated but not inclusive.
June 30
July 31
Aug 30

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July 31
Aug 30
Sep 19 -------109
Interest= Principle* days of interest* rate/360= 10,000*10*109/360=$302
(Corporate bonds: all 30 days/ month, not count the last day)

Treasury bills---one year to maturity

T notes---10 yr
T bonds----30yr
Maximum maturity of commercial paper---9month---270days

Maturity: Commercial paper< T bills< T notes< T bonds

270 days 1 yr 10 yr 30 yr

Government securities---Treasury notes, bills and bonds (Treasury bills have maximum 1 years 20 question+5 bonus
maturity, T notes 10years, T bonds 30 years)
Calculator
Agency's papers--backed by U.S. government---are not 100% securities

T bills are issued at Par? Discount? Premium?----issue at Discount and Book entry form (Only T
bills at discount from Face value/Par value $1000, others all at Book entry form), mature at Par

U.S. govern securities have no risks, (they have the power to print money), no default risk

Zero Coupon Bond---no coupon, but issued at discount (no reinvest risk)
Normally: $1000------8% straight 10 yrs; ZCB: break down to
$200--------moves up by each year to $1000, the process called
Imputed Gains.
T bills are quoted at discount.
If buy $10,000 T Bills at $9,300; the $700 is the interest, the rate $700/9300

To calculate interest rate of Government bond (365 days):

Amount of interest= Principle balance*rate*days of interest/365
Wed, 9/15, investor buy $10,000 bond, interest rate of 10%, matures at 12/01, what's interest?
Days 117, June30, July31, Aug31, Sep15 (Govern counts every day)
Interest=10,000*10% *107/365

Repo---is to buy back at specific time on specific date at specific rate of U.S. government
securities. (Gov lending money to banks---Easy money)
Reverse Repo---to sell the securities back to the original bank at a predetermined date and price.
(Gov take money out---Tight money)

Maximum maturity of Commercial paper---9 months/ 270 days

Corporations issue Commercial paper for raising short-tem capital.

Bankers Acceptance(BA)----Why issue? To facilitate foreign trade (between banker to banker,

when the paper/guarantee of payment is signed become BA paper, the paper would be traded on
the market, like Letter of Credit) Called very high quality paper, signed by a trustworthy bank to
another bank.

Fed funds----is money borrows from bank to bank on overnight basis, to help each other with
short-term needs, some hours, days.

U.S. govern bonds----is traded at 97.08----what’s the dollar value of the bond? 972.50.
08/32*10=1/4, 97*10------972.5 (One bond is 10, 1/2=5, 3/4=7.5, 1/4=2.5)

What is guaranteed by U.S. government? General obligations? Revenues? Fannie May(Implied Government Bond: 08/32
Bond)? Genie May?------Genie May. 365 days, includes every day

If Conversion Price is 25 dollars a bond, how many shares get? 40

If converted 2 for 1, will get double shares.
Corporate Bond: 5/8=0.675
Stock dividend: get 25 shares for $40, get20% dividend---5additional+25=30 shares, what would 360 days, 30days/month
be new price of share? $33.33 Increase or decrease? Decrease. excluding the day

Corporate bond, collected at 93+5/8, what's the dollar value?

5/8*10=6.25, 93*10-------936.25

Parity---------In handout and the formula

Accrued Interest----in handout

Underwriting Syndicate; Cumulative voting

Stocks split---A company declares the forward stock split, what's effect on the stock par value?
Decrease the share value and increase the numbers of shares outstanding.

Warrant doesn't pay dividend. Warrant can be perpetual.

If company has cumulative prefer stock outstanding that pays $7 per year, if dividend were not
paid last year but will be paid this year, how much should ? $14
If ………none-accumulative……..? How much? $7

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paid last year but will be paid this year, how much should ? $14
If ………none-accumulative……..? How much? $7

If the event of liquidation of a corporation, the common stock holders--------have the last claim on
receipt.

Which would be owners of corporation-----common stockholders and preferred stockholders

(preferred stockholders are hybrid, they have the stocks and dividend of bonds, have the right to
convert to common)

Cumulative preferred
In corporate, 5% preferred stock outstanding, the dividends of past three year, 1st year is paid 2, Stock PAR: $100
2nd year is 2, 3rd year is 3, 4th year is due 5, how much to pay?
Have to pay total. Each year has to pay 5%*100(par value): 3+3+2+5=13 Bond PAR:$1000

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