AFM121 Lecture Notes - Lecture 4: Inverse Relation, Transaction Cost, Cash Flow
27 Dec 2015
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Overview of types of securities interest-bearing securities are basically debt covenants. Preferred shares are sort of a link between debt and shares. However, there is a limitation to the amount of debt that you can get: borrowing costs keep going up, and the debt cannot be allowed to grow infinitely. Debt-holders are also prioritization for being paid off during liquidation. This implies that debt has lower expected return (because there is lower risk associated with it). Money market instruments short-term liquidity: less than one year. They are usually issued at lower than face value. -> (interest payment/e[r]: difference between the face value and the value it was sold at discount) Fixed income security longer-term instruments (than money market instruments) Trading bonds compare to a zero-risk capacity (example: the canadian savings. They also compare with companies trading similar bonds. The bonds usually are worth the same, the price is divided differently among principal and interest.
