chapter 3 security types

Investment; Jordan & Corrado احمد. ددشتي

Chapter 3Security Types

• Classifying Securities• Interest-Bearing Assets• Equities• Derivatives• Options• Summary and Conclusions


Classifying Securities

Classification of financial assets

Basic types Major subtypes

Interest-bearing Money Market instruments Fixed income securities

Equities Common stock Preferred stock

Derivatives Options Futures


Interest-Bearing Assets

• Money market instruments

• Basic features

• Examples

• T-bills

• Commercial paper


Interest-Bearing Assets (continued)

• Fixed-income securities• Basic features• Examples

• Treasury bonds• Municipal bonds• Corporate bonds

• Mortgage-backs


Wall Street Journal NY Bond Quotes

BondsCur Yld. Vol. Close

Net Chg.

ATT 6s09 6.3 10 95½ + 5/8ATT 8¼22 7.9 95 103¼ - 3/8ATT 6½29 7.0 107 92¾ + 1/8ATT 8½31 8.0 167 107½ - 5/8AlldC zr09 … 5 48¾ - 3/8


Corp Bond Quotes from WSJ on Friday, August 24, 2000


Equities

• Common stock• Basic features• Classes of stock

• Preferred stock• Basic features• Is preferred really debt?


Wall Street Journal Stock Quotes

Stock Sym DivYld % PE

Vol 100s Hi Lo Close

Net Chg

138¼ 55½ IBM IBM 0.48 0.3 39 56457 139½ 135¾ 137¼ +1/1627¾ 26¼ IBM pf 1.88 7.0 … 83 26¾ 26 26 -1/1645½ 32 IntFlavor IFF 1.52 3.40 25 1947 45¼ 44¼ 45 +3/1659½ 35½ IntPaper IP 1.00 1.9 80 25293 54½ 51¼ 53 -1/2

52 Weeks Hi Lo


The New CNBC Ticker


Derivatives• Primary vs derivative assets

• An example: STRIPS

• Futures contracts

• Basic features

• Basic types

• Buying and selling

• Delivery

• Marking-to-market

• Potential gains and losses


Wall Street Journal Futures Price QuotesOpen

Open High Low Settle Change High Low Interest

July 179 180 178¼ 178½ -1½ 312 177 2,837Sept 186 186½ 184 186 -¾ 280 184 104,900Dec 196 197 194 196½ -¼ 291¼ 194 175,187

Sept 117-05 117-21 116-27 117-05 +5 131-06 111-15 647,560Dec 116-19 117-05 116-12 116-21 +5 128-28 111-06 13,857

Sept 11200 11285 11145 11241 -17 11324 7875 18,530Dec 11287 11385 11255 11349 -17 11430 7987 1,599

Corn (CBT) 5,000 bu.; cents per bu.

TREASURY BONDS (CBT) - $1000,000; pts. 32nds of 100%

DJ INDUSTRIAL AVERAGE (CBOT) - $10 times average

Lifetime


Options

• Calls

• Puts

• Basic features

• The contract

• The premium

• The strike price

• Potential gains and losses

• Stock sells for $100/share - buy 1 round lot

• Call option sells for $5 -- buy 20 contracts


Wall Street Journal Option Quotes

Option/Strike Exp. Vol. Last Vol. LastIBM 130 Oct 364 15¼ 107 5¼138¼ 130 Jan 112 19½ 420 9¼138¼ 135 Jul 2365 4¾ 2431 13/16

138¼ 135 Aug 1231 9¼ 94 5½138¼ 140 Jul 1826 1¾ 427 2¾138¼ 140 Aug 2193 6½ 58 7½

--Put----Call--


WSJ quotes for 8/24/00


Problem 3-5

You found the following stock quote for DRK Enterprises, Inc., in the financial pages of today’s newspaper. What was the closing price for this stock that appeared in yesterday’s paper? How many round lots of stock were traded yesterday?

Stock Sym DivYld % PE

Vol 100s Hi Lo Close

Net Chg

117 52½ DRK DRK 3.60 4.6 16 7295 81¾ 76 ??? -3/8

52 Weeks Hi Lo


Problem 3-5 Solution

Yesterday’s Papers’ Closing Price:Yld % = Div. / Closing Price4.6% = 3.60 / Closing PriceClosing Price (today’s paper) = 3.60 / .046 = 78.26 = $78¼ Yesterday’s = $78¼ + 3/8 = $78

Round Lots:Volume in 100s is 7295, so 7295 round lots or 729,500shares were traded.



In the previous problem, assume the company has fivemillion shares of stock outstanding. What was thenet income for the most recent four quarters?

Net Income:P/E = Price / EPS = 16 and stock price = 78 ¼, so16 = 78.25 / EPSEPS = 78.25/ 16 = $4.89so with 5 million shares outstanding,Net Income = $4.89 x 5M = $24,450,000


Problem 3-12

Suppose the following bond quote for ISU Corporationappears in the financial pages of today’s newspaper.If this bond has a face value of $1,000, what closingprice appeared in yesterday’s newspaper?

Bonds CurYld

Vol Close NetChg

ISU 7 s11 8.7 10 ??? +1/2



Yesterday’s close:Interest = 7-7/8 = 7.875%Interest payment = 7.875% x $1,000 = $78.75 annuallyCurrent Yield = 8.7% = Interest payment / Bond price8.7% = $78.75 / Bond priceBond price = $78.75 / 8.7% = $905.17,but prices are quoted as percent of par value, soYesterday’s price = 90.517 - 0.5 = 90.017So yesterday’s price is $900.17



In the previous problem, in what year does the bondmature? If you currently own 25 of these bonds, howmuch money will you receive on the next couponpayment date?

The bond matures in 2011 (from the 11 after the “s”)

Coupon Payment:Interest payment = $78.75 / 2 = $39.375 every six monthsSo 25 bonds will pay:$39.375 x 25 = $984.38

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