1. Contemporary Investments: Chapter 3 Chapter 3 DIRECT INVESTMENT ALTERNATIVES What are money market instruments? What are bonds and other long-term fixed income securities? Why invest in common stocks? What are derivative securities? How is investing in real assets different from investments in paper assets?

2. Contemporary Investments: Chapter 3 Categorizing investment alternatives –Major categories of investments –Direct versus indirect financial assets real assets –The composition of household assets in the U.S.

3. Contemporary Investments: Chapter 3 Figure 3.1–Contemporary Investment Alternatives

4. Contemporary Investments: Chapter 3 Money market instruments Characteristics Short maturity (one year or less) High quality Large denominations Discount securities Short term U.S. government securities Treasury bills

5. Contemporary Investments: Chapter 3 T-bill prices Bank discount yield Bond equivalent yield Short-term federal agency securities Commercial paper Maturity Dealer versus direct placed paper

6. Contemporary Investments: Chapter 3 Banker’s acceptances Large certificates of deposit Repurchase agreements Short-term municipals Taxable equivalent yield Foreign money market instruments Eurodollars and Euro CDs LIBOR

7. Contemporary Investments: Chapter 3 Long-term fixed income securities (bonds) Investment characteristics Interest bearing instruments Varying quality (credit and default risk) Callable Government bonds T-notes and T-bonds Inflation indexed securities

8. Contemporary Investments: Chapter 3 Federal agency securities Municipal bonds General obligation bonds Revenue bonds Serial versus term bonds Corporate debt issues

9. Contemporary Investments: Chapter 3 Bond ratings Collateral provisions Mortgage pass-through securities Foreign bonds Preferred stock

10. Contemporary Investments: Chapter 3 Common stock Why invest in stock Price appreciation versus income Relationship between stock prices and earnings

11. Contemporary Investments: Chapter 3 Figure 3.2 – The Long-Term Relationship Between Stock Prices and Earnings for Johnson & Johnson

12. Contemporary Investments: Chapter 3 Rights of shareholders Voting rights Preemptive rights Foreign stocks Direct ownership ADRs

13. Contemporary Investments: Chapter 3 Derivative securities What is a derivative security Stock options Calls Puts Leaps

14. Contemporary Investments: Chapter 3 Derivative securities Corporate created derivatives Convertibles Warrants Futures contracts

15. Contemporary Investments: Chapter 3 Real assets Characteristics of real asset investments Real estate Precious metals, gems, collectibles