1. Chapter 3 Security Types
Classifying Securities
Interest-Bearing Assets
Equities
Derivatives
Options
Summary and Conclusions

2. Classifying Securities

3. Interest-Bearing Assets
Money market instruments
Basic features
Examples
T-bills
Commercial paper

4. Interest-Bearing Assets (continued)
Fixed-income securities
Basic features
Examples
Treasury bonds
Municipal bonds
Corporate bonds
Mortgage-backs

5. Wall Street Journal NY Bond Quotes

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

7. Equities Common stock Basic features Classes of stock Preferred stock
Is preferred really debt?

9. Wall Street Journal Stock Quotes

11. The New CNBC Ticker

12. 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

13. Wall Street Journal Futures Price Quotes

15. 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

16. Wall Street Journal Option Quotes

17. WSJ quotes for 8/24/00

18. 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?

19. Problem 3-5 Solution Yesterday’s Papers’ Closing Price:
Yld % = Div. / Closing Price
4.6% = 3.60 / Closing Price
Closing Price (today’s paper) = 3.60 / .046 = = $78¼
Yesterday’s = $78¼ + 3/8 = $78
Round Lots:
Volume in 100s is 7295, so 7295 round lots or 729,500
shares were traded.

20. Problem 3-6 Solution
In the previous problem, assume the company has five
million shares of stock outstanding. What was the
net income for the most recent four quarters?
Net Income:
P/E = Price / EPS = 16 and stock price = 78 ¼, so
16 = / EPS
EPS = 78.25/ 16 = $4.89
so with 5 million shares outstanding,
Net Income = $4.89 x 5M = $24,450,000

21. Problem 3-12 Suppose the following bond quote for ISU Corporation
appears in the financial pages of today’s newspaper.
If this bond has a face value of $1,000, what closing
price appeared in yesterday’s newspaper?

22. Problem 3-12 Solution Yesterday’s close: Interest = 7-7/8 = 7.875%
Interest payment = 7.875% x $1,000 = $78.75 annually
Current Yield = 8.7% = Interest payment / Bond price
8.7% = $78.75 / Bond price
Bond price = $78.75 / 8.7% = $905.17,
but prices are quoted as percent of par value, so
Yesterday’s price = =
So yesterday’s price is $900.17

23. Problem 3-13 Solution
In the previous problem, in what year does the bond
mature? If you currently own 25 of these bonds, how
much money will you receive on the next coupon
payment date?
The bond matures in 2011 (from the 11 after the “s”)
Coupon Payment:
Interest payment = $78.75 / 2 = $ every six months
So 25 bonds will pay:
$ x 25 = $984.38