CapitalMktsReading CH01.pptVIP

Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall Introduction Chapter 1 Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall * Types of Assets Tangible Assets Physical properties Examples include buildings, land, machinery Intangible Assets Absence of physical properties Examples include financial assets, goodwill, patents, trademarks, copyrights, etc Financial assets Claim to future income Examples include stocks, bonds, derivatives Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall * Types of Financial Assets Bank loans Government bonds Corporate bonds Municipal bonds Foreign bond Common stock Preferred stock Foreign stock Promissory notes Accounts receivables Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall * Debt vs. Equity Debt Instruments Fixed dollar payments Examples include loans, bonds Equity Instruments Dollar payment is based on earnings Residual claims Examples include common stock, partnership share Hybrid Instruments Characteristics of both debt and equity Example preferred shares Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall * Price of Financial Asset and Risk The price or value of a financial asset is equal to the present value of all expected future cash flows. Expected rate of return is a function of future cash flows and risk (i.e. uncertainty) Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall * Financial Asset Risks Purchasing power risk or inflation risk Default or credit risk Exchange rate or currency risk Interest rate risk Copyright ? 2010 Pearson Education, Inc. Publishing as Prentice Hall * Role of Financial Assets Transfer funds from surpl