Understanding Interest Rates, Treasury Securities, and Capital Markets, Quizzes of Finance

Download Understanding Interest Rates, Treasury Securities, and Capital Markets and more Quizzes Finance in PDF only on Docsity! TERM 1 treasury bill DEFINITION 1 less than one year TERM 2 treasury note DEFINITION 2 1 year- 10 years TERM 3 treasury bond DEFINITION 3 30 years+ TERM 4 reasons for so many different interest rates DEFINITION 4 1. term to maturity2. default risk3. tax treatment4. marketability/liquidity5. special features TERM 5 nominal rate DEFINITION 5 the observed rate TERM 6 term structure of interest rates DEFINITION 6 why do investments with similar risk but different maturities exhibit different rates (yield)? TERM 7 yield curve DEFINITION 7 shows the relationship between yield and maturity (positively related) TERM 8 the expectation theory DEFINITION 8 the observed/current long term rates are equal to the average of the observed/current short term rates expected to occur over the life of the long term investment TERM 9 upward sloping yield curve DEFINITION 9 future short term rates are expected to rise above the current short term rateproblem: future short term rates are just as likely to fall TERM 10 liquidity premium theory DEFINITION 10 needed to compensate lenders for uncertainty in the long term investmentsthe longer the maturity, the higher the premium{if i have to wait longer then I want a higher interest rate to compensate for my uncertainty over the longer period} TERM 21 marketability/liquidity DEFINITION 21 the higher the liquidity, the lower the yieldcorporate bonds are less liquid than t bonds so corporate bonds offer a higher yield TERM 22 inversely proportional DEFINITION 22 liquidity and yield are_____ ______ TERM 23 call provision DEFINITION 23 provides the issuer/borrower the right or option to buy back the bond before maturity at a predetermined pricethis is an advantage to the issuer and the issuer is willing to sell the bond with a _______ at a lower price or offer a higher rate(will call back if interest rate drops) TERM 24 convertible securities DEFINITION 24 provide investor the option to convert the bond into a certain share of stockthis is an advantage to the investor and the investor is willing to buy the bond with convertible feature at a higher price or accept a lower rate TERM 25 money market DEFINITION 25 market where short term maturity, highly marketable, and low default risk financial securities are bought and soldkey players: banks, federal reserve, US treasury department, brokers/dealers, money market mutual funds, non financial corporation (IBM/Fedex) TERM 26 money market DEFINITION 26 the economic role of _____ ______ is for economic units to store, fund, and adjust liquidity TERM 27 US Treasury bills (T bills) DEFINITION 27 short term debt obligation of the us gov with 1,3,6, and 12 month maturities and a minimal principal of $10,000 with a multiple of $5000 thereafterevery week the 1,3, and 6 months are sold at a discount in auction to the "highest bidders"12 month are sold monthly TERM 28 competitive bids DEFINITION 28 investors stated the desirable quantity and price TERM 29 non competitive bids DEFINITION 29 investors stated the desirable quantity and pay the avg price of competitive bids TERM 30 T bills DEFINITION 30 highly liquidmajor investment in the money market TERM 31 federal agency securities DEFINITION 31 short term securities issued by major gov agenciesex: farm credit bank: provide loans to farmers; Federal Home Loan mortgage company (freddie mac); federal national mortgage association(fannie mae) TERM 32 commercial paper DEFINITION 32 short term unsecured promissory notes (no collateral) issued by a good credit rating and financially sound corporation in a minimum denomination TERM 33 commercial paper DEFINITION 33 substitute for short term loans from bankssold at a discount TERM 34 negotiable certificates of deposits (CDs) DEFINITION 34 short term debt obligation of depository institutions like banks in denominations less than or equal to 100Krates and maturity are up for discussion TERM 35 bankers acceptances DEFINITION 35 a draft (check) {promise to pay} issued by a firm, payable at a specific future date to the holder, guaranteed by a bank TERM 46 STRIPS DEFINITION 46 become zero coupon and principle onlyinvestor: lower yield (these are good) TERM 47 term bonds DEFINITION 47 bonds of the same issue mature on the same date TERM 48 registered bonds DEFINITION 48 coupons are mailed to the registered owner TERM 49 serial bonds DEFINITION 49 bonds of the same issue may mature on different dates TERM 50 major investors of corporate bonds DEFINITION 50 life insurance companiespension fundsonly quality bonds (AAA,AA,A,BBB) TERM 51 US Treasury notes and treasury bonds DEFINITION 51 most liquid of capital market securityissue coupon paid semi annually that is taxed at the federal level but is exempted from state taxnot t bills bc not long term TERM 52 treasury inflation protection services (TIPS) DEFINITION 52 where the principal changes as inflation rate changes, adjusted semi annuallybetter than strips (protected) TERM 53 municipal bonds DEFINITION 53 general obligation bondsrevenue bonds TERM 54 municipal bonds DEFINITION 54 long term debt of state and local government to finance public facilities like school, road, etcmajor investors: high tax bracket investors, mutual funds, insurance companies, banks TERM 55 general obligation bonds DEFINITION 55 interest and principal are from general tax revenue TERM 56 revenue bonds DEFINITION 56 interest and principal are form revenue generated by the project TERM 57 mortgages DEFINITION 57 long term debt (common maturity 15 or 30 years) where the asset is financed serves as the collateral for the loan- a secured debt TERM 58 types of insurance DEFINITION 58 1. federally insured by federal housing administration or veterans affairs(.5% of the loan amount is charged as insurance fee/premium)2. conventional mortgages are privately insured TERM 59 private mortgage insurance (PMI) DEFINITION 59 there is no need for ______ if the loan to value ratio is less than or equal to 80% TERM 60 amortization schedule DEFINITION 60 a schedule of monthly mortgage payments broken down into principal and interest