1. Chevalier Spring 2015

2.  You need both in society  Saving and capital formation

3.  Financial system-transferring money from savers to borrowers  Circular flow of funds  Page 315

5.  Finance companies-makes loans  Life insurance companies-through premiums  Pension funds/mutual funds- sell stock in itself/money for future  Real estate investment trusts- home construction loans

6.  Risk/return relationship  Investment objectives  Importance of stock brokers in today’s market  Simplicity  Consistency (p. 319)  IRA vs. Roth IRA  Mutual Funds  401 K Pension Plan  Money Market (where money is loaned for one year)  Individual trading

9.  Government or firms need to borrow money for the long term  Coupon rate- stated rate of interest  maturity date- date at which the bond reaches maturity and can be redeemed for full amount of interest plus principle.  par value (purchase price)  Current Yield- % of return paid on investment  Bond ratings (p. 322)

10.  CD’s  Corporate bonds-taxable income  Muni bonds-tax exempt  Govt. savings bonds  T-notes-2-10  T-bonds-10-30  T-bills- 13,26,52

11.  EMH-efficient market hypothesis- equities of stocks are always priced about right.  Portfolio diversification (stockbroker)  Securities exchanges-  NYSE  AMEX  Regional  Global  OTC (nasdaq)

12.  DJIA  Standards and Poor 500 (SPDR’s)  Bull v. Bear market  Options market  Call vs put option (buy vs. sell)

13.  ' Trader A' (Put Buyer) purchases a put contract to sell 100 shares of XYZ Corp. to 'Trader B' (Put Writer) for $50/share. The current price is $55/share, and 'Trader A' pays a premium of $5/share. If the price of XYZ stock falls to $40/share right before expiration, then 'Trader A' can exercise the put by buying 100 shares for $4,000 from the stock market, then selling them to 'Trader B' for $5,000.

14.  Buy a call: The buyer expects that the price may go up.  The buyer pays a premium that he will never get back.  He has the right to exercise the option at the strike price.  Write a call: The writer receives the premium.  If the buyer decides to exercise the option, then  the writer has to sell the stock at the strike price.  If the buyer does not exercise the option, then  the writer profits the premium.