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Three Categories of Finance
- Lending investments
- ownership investments
- derivatie investments
debt instruments and bonds issued by the government or corporations.
common stocks, preffered stock, income producing real estate. investment vehickles that represent an ownership position in a corporation
investments that get or derive their value from the price of a specified asset. These investments involve conracts that give the contract holder the obligation or chocie to buy or sell a specified asset over or at a specified time period.
money markets/ cash investments
a type of lending investment that is short term
Pros: they are highly liquidable and secure.
Cons: your interest rates or returns are low.
captial market investments
a type of lending investment that is long term
money market mutual fund
you invest your money into a pool of money in which an investor invests the money.
short term interst rates in return
short term notes of debt issued by the federal government. (4 weeks-1year)
you receive no interest. instead, your money appreciates, and you get more money at face value then what you paid for it.
short term unsecured promissory notes sold by large corporations to raise money. 5000 to 5million denominations. span from 3- 270 days, so they don't have to register with the SEC.
Fixed income securities (capital market investments)
- Also known as bonds.
- Long term borrowing instruments where you know your returns ahead of time and maturity date.
- 5 years- short term
- 10 years- intermediate
- +10 years- long term
Also known as par value or principal.
the amount you recieve when the bond matures.
Treasury bills, notes, bonds
US Federal government borrowing instruments.
- Bills- short term maturities, usually less then 1 year
- Notes- maturities of 1-10 years
- Bonds- maturities greater then 10 years.
federal agency debt
federal agencies and agencies that are federally sponsored.
- debt issued by state and local governments.
- The advantage is that they are exempt from federal taxes, and sometime state and local taxes.
- Two types:
- 1. revenue bond
- 2. General obligation bond
over the life of a bond, you receive semi annual interest payments, which remain the same over the life of the bond.
coupon rate- the actual rate of interest that the bond pays.