(font: "Arial")[You, have some savings which you intend to invest in some portfolio. This interactive game is designed for its educational purpose, to suggest better financial decisions and inform the risks. Happy gaming!]
(font: "Arial")[You have some following ooptions to look into:]
[[The Bond Market->The Bond Market]]
[[Equity Securities->Equity Securities]]
[[Stock and Bond Market Indexes->Stock and Bond Market Indexes]]
[[Derivative Markets->Derivative Markets]]A bond is essentially a written promise that the amount loaned to the issuer will be repaid.
The bond market includes Treasury notes and bonds, corporate bonds, municipal bonds, mortgage securities, and federal agency debt.
Tell me more about different bonds! [[Click here->Tell me more about bonds]]
Have you considered the default risk of bounds? [[Tell me more about risk of bonds ->Risk of bonds]]
Skip and see some real-life [[reports & comments->reports & comments]]!
[[Bond Market Indicators->Bond Market Indicators]]
[[NASDAq->NASDAq]]is a global electronic marketplace for buying and trading securities. It was the world's first electronic exchange.
[[Common stocks-> Common stocks]]
[[Preferred stock->Preferred stock]]A market index tracks the performance of a certain group of stocks and bonds. These investments are grouped around a particular industry, like tech stocks for example or the stock market overall, as in the case of S&P 500 which tracks all the 500 top companies in the US.
[[Tell me about different market indexes->Tell me about different market indexes]]
[[Investments in market indexes->Investments in market indexes]]
some [[upside->upside]] and [[risks->risks]] of market indexes
[[Jump to see some real life examples and reports ->Jump to see some real life examples and reports]]Futures, options, and related derivatives contracts provide payoffs that depend on the values of other variables such as commodity prices, bond and stock prices, interest rates, or market index values. For this reason, these instruments sometimes are called derivative assets: Their values derive from the values of other assets. These assets are also called contingent claims because their payoffs are contingent on the value of other values.
Tell me about [[Options-> Options]]!
Tell me about [[Future contracts-> Future contracts]]!"The best place to start building an investment portfolio is at the least risky end of the spectrum." - Zvi, B. et al. (2011). "Investment".
In the US inflation-protected Treasury bonds are called TIPS (Treasury Inflation-Protected Securities), in the UK they are called ILB (Inflation‑Linked Bond)
Below is a listing of TIPS by the U government, resource from Bloomberg.
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NAME
=|=
COUPON
=|=
PRICE
=|=
YIELD
=|=
1 MONTH
=|=
1 YEAR
|==|
=|=
GTII5:GOV 5 year
=|=
0.13
=|=
108.53
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-1.69%
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+12
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-45
|==|
=|=
GTII10:GOV 10 year
=|=
0.13
=|=
111.51
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-1.00%
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+6
=|=
-3
|==|
=|=
GTII15:GOV 15 year
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2.13
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152.31
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-0.58%
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-1
=|=
-7
|==|
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GTII20:GOV 20 year
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0.13
=|=
114.34
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-0.34%
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+3
=|=
-1
|==|
Some agencies from a particular sector of the economy might not receive enough funds through normal private sources. Thus they issue their own securities to finance their activities.
In the US, this includes many major mortgage-related agencies.Such as the Federal National Mortgage Association (FNMA, or Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC, or Freddie Mac).
Although the debt of US agencies is not explicitly insured by the US government, the government would assist an agency nearing default.
"On September 7, 2008, Fannie Mae and Freddie Mac were placed into
conservatorship... the federal government to inject up to as much as $100 billion each in Fannie Mae and Freddie Mac. " - W. Scott Frame "The 2008 Federal Intervention to Stabilize Fannie Mae and Freddie Mac". Federal Reserve Bank of Dallas. 2015.International bonds are those denominated in a currency other than that of the country in which it is issued. For example, a UK company that issues bonds in Japan denominated in US dollars.
International bonds are usually corporate bonds.
International bonds can offer portfolio diversification, but are highly subject to currency risk. - investopedia
International bonds are not [[foreign bonds -> foreign bonds]]Municipal bonds are similar to Treasury and corporate bonds except that their interest income is exempt from federal income taxation. The interest income also is exempt from state and local taxation in the issuing state.
"An investor choosing between taxable and tax-exempt bonds must compare after-tax returns on each bond." - Zvi, B. et al. (2011). "Investment".
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NAME
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YIELD
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1 DAY
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1 MONTH
=|=
1 YEAR
|==|
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BVMB1Y:IND Muni Bonds 1 Year Yield
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0.18%
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0.00
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+9
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+3
|==|
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BVMB2Y:IND Muni Bonds 2 Year Yield
=|=
0.19%
=|=
0.00
=|=
+10
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+2
|==|
=|=
BVMB5Y:IND Muni Bonds 5 Year Yield
=|=
0.57%
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+0
=|=
+15
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+25
|==|
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BVMB10Y:IND Muni Bonds 10 Year Yield
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1.17%
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+0
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+23
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+24
|==|
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BVMB20Y:IND Muni Bonds 20 Year Yield
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1.76%
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+0
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+18
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-1
|==|
What is the [[yield->yield]]?Corporate bonds are similar in structure to Treasury bonds, because semiannual coupons are paid over their lives and return the face value to the bondholder at maturity.
"They differ most importantly from Treasury bonds in degree of risk." - Zvi, B. et al. (2011). "Investment".The US government borrows large funds by issuing what's called Treasury notes (T-notes) and Treasury bonds. I want to look into [[Treasury Notes and Bonds->Treasury Notes and Bonds]]
Around the world, many governments issued bonds that are linked to an index of the cost of living in order to provide their citi- zens with an effective way to hedge inflation risk. I want to look into [[Inflation-Protected Treasury Bonds->Inflation-Protected Treasury Bonds]]
Some US government agencies issue their own securities to finance their activities. I want to look into [[Federal Agency Debt->Federal Agency Debt]]
Many firms borrow abroad and many investors buy bonds from foreign issuers. I want to look into [[International Bonds->International Bonds]]
The state and local governments issue bonds called municipal bonds. I want to look into [[Municipal Bonds->Municipal Bonds]]
Private firms borrow money directly from the public by means of corporate bonds.I want to look into [[Corporate Bonds->Corporate Bonds]]
Late 2016, [[Bond& pension deficits->Bond& pension deficits]]
August 2020-October 2021, [[Evergrande crisis->Evergrande crisis]]The following section is from a report in 2016 by Joanna S Kao and John Authers. (FT)
Bond yields have fallen globally since the UK vote on leaving the EU on June 23 (2016).
...For more than three decades, bond yields — which follow interest rates — around the world have decreased. The ten-year US Treasury yield — which was as high as 16 per cent in 1981 — is now just about 1.5 per cent.
These yields are treated as a “risk-free rate,” which underpins the pricing of all other bonds and many other financial transactions. They also critically affect the price that pension funds must pay to meet their guarantees to their employees.
Back to the [[start page->start page]]T-notes are issued with maturities ranging up to 10 years, while bonds are issued with maturities ranging from 10 to 30 years.
Below is a listing of Treasury notes and bounds by the US government, resource from the WSJ.
Look at the last 30-year maturity treasury bond. The coupon income, or interest, paid by the note is 2.00% of par value, meaning that a $1,000 face-value note pays $20 in annual interest in two semiannual installments of $10 each.
The bid price of the note is 98.2800. The asked price is 98.3000.
Thus the bid price of 98.2800 should be interpreted as 98.2800% of par, or $982.80, for the $1,000 par value security. Similarly, the note could be bought from a dealer for $983.00.
The -0.8520 change means the closing price on the day (Oct 15th, 2021) fell 00.80% from the previous day’s closing price.
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MATURITY
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COUPON
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BID
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ASKED
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CHG
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ASKED YIELD
|==|
=|=
10/31/2021
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1.250
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100.0120
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100.0160
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-0.0020
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-0.2960
|==|
=|=
10/31/2021
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1.500
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100.0140
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100.0200
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-0.0060
=|=
-0.2670
|==|
date progresses until...
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5/15/2051
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2.375
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107.1120
=|=
107.1320
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-0.1980
=|=
2.040
|==|
=|=
8/15/2051
=|=
2.000
=|=
98.2800
=|=
98.3800
=|=
-.08520
=|=
2.048
|==|
What is [[par value -> par value]]Foreign bonds are issued in a domestic market by a foreign issuer—but in the currency of the domestic country. For example, a bond that is issued in Canada and valued in Canadian dollars by a U.S. company is a type of foreign bond. -investopediaThe current yield of a bond is the bond’s annual coupon payment divided by the bond price.
The yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate.The Par value, also know as face value or nominal value, refers to the original value of a bond when it was first issued.Bond default risk, usually called credit risk, is measured by some Each rating firms. Firms include Moody’s Investor Services, Standard & Poor’s Corporation, assign letter grades to the bonds of corporations and municipalities to reflect their assessment of the safety of the bond.
The top rating is AAA or Aaa, assigned to few firms only. Those rated BBB or above (S&P, Fitch) or Baa and above (Moody’s) are considered investment-grade bonds, bonds below B** are classified as speculative-grade or junk bonds.
Bonds(debts) rated Aaa and AAA are recognised with full capacity to pay interest and the firm's repay principal is extremely strong. Bonds(debts) rated Baa and BBB are recognised with adequate capacity to pay interest and repay principal. However adverse economic conditions or changing circumstances could impact the capacity to pay interest and repay for debt.The following section is from a report in 2021 by Hudson Lockett and Thomas Hale. (FT)
Evergrande, the world’s most indebted real estate group, missed an $83.5m interest payment last month, rattling global markets.
“The market really has turned quite gloomy,” said a senior debt capital markets banker at one European bank, who estimated that a third of the approximately 60 Chinese developers with outstanding dollar debt could end up permanently frozen out of international finance, further weakening deal flow.
Real estate has been driving China's growth for too much and too long...(The government) came up with the solution of so-called "three red lines", which are three financial ratios, mostly debt ratios that China's real estate developers must follow in order to gain access to credit.
The policy, which is launcged last August, has had a huge impact on the industry - as many developers, led by Evergrande, are in deep fanancial trouble to follow these requirements."
Back to the [[start page->start page]]US: The daily performance of the [[Dow Jones Industrial Average-> Dow Jones Industrial Average]] is a staple portion of the evening news report. Although the Dow is the best-known measure of the performance of the stock market, it is only one of several indicators.
US: Compare to DJIA, the Standard & Poor’s Composite 500 ([[S&P 500-> S&P 500]]) stock index is a more broadly based index of 500 firms.
UK: The [[FTSE 100->FTSE 100]](financial stock exchange market) is a share index and its broadly consists of the largest 100 qualifying UK companies by full market value.
UK: The [[FTSE 250->FTSE 250]] (FTSE pronounced “footsie”) is a capitalisation weighted index consisting of the 101st to the 350th largest companies listed on the London Stock Exchange.
Actually, most indexes today use a modified version of market-value weights. They weight by the market value of free float, that is, by the value of shares that are freely tradable among investors. Some shares are effectively not available for investors to purchase. The distinction is more important in Japan and Europe, where a higher fraction of shares are held in such nontraded portfolios.April 2021, [['post-pandemic' optimism about economic recovery]]
June 2016, [[Brexit: Retail brokers under pressure as markets seize up -> Brexit: Retail brokers under pressure as markets seize up]]The total market value of a company is calculated by multiplying the share price of the company by the total number of shares they have issued(this is called market cap weighted index). Many of these are internationally focused companies, however, so the index's movements are a fairly weak indicator of how the UK economy is faring and are significantly affected by the exchange rates of the pound sterling. The FTSE 100 Is listed on the London Stock Exchange and it’s maintained by its subsidiary the FTSE GROUP.
Promotions and demotions to and from the index occur quarterly in March, June, September, and December. The Index is calculated in real time and published every minute.
Nasdaq (National Association of Securities Dealers Automated Quotations) is a global electronic marketplace for buying and trading securities. It was the world's first electronic exchange. Most of the world's technology giants, including Apple and Facebook, are listed on the Nasdaq.
It also refer to the Nasdaq Composite, an index of more than 3,000 stocks listed on the Nasdaq exchange that includes the world’s foremost technology and biotech giants such as Apple, Google, Microsoft, Oracle, Amazon, and Intel.
See other [[stock and Bond Market Indexes->Stock and Bond Market Indexes]]HIGHER YIELDS
Tax-free flavours
Check writing
!!under construction!![[Lack of Downside Protection->Lack of Downside Protection]]
[[Limited Exposure to Different Strategies->Limited Exposure to Different Strategies]]
[[Lack of Reactive Ability->Lack of Reactive Ability]]
[[ No Control Over Holdings-> No Control Over Holdings]]
The stock market has proved to be a great investment in the long run, but over the years it has had its fair share of bumps and bruises. Investing in an index fund, such as one that tracks the S&P 500, will give you the upside when the market is doing well, but also leaves you completely vulnerable to the downside.There are countless strategies that investors have used with success; unfortunately, buying an index of the market may not give you access to a lot of these good ideas and strategies. Investing strategies can, at times, be combined to provide investors with better risk-adjusted returns. Index investing will give you diversification, but that can also be achieved with as few as 30 stocks, instead of the 500 stocks that the S&P 500 Index would track.Index investing does not allow for advantageous behaviour. If a stock becomes overvalued, it actually starts to carry more weight in the index. Unfortunately, this is just when astute investors would want to be lowering their portfolios' exposure to that stock. So even if you have a clear idea of a stock that is overvalued or undervalued, if you invest solely through an index, you will not be able to act on that knowledge.Indexes are set portfolio. If an investor buys an index fund, they have no control over the individual holdings in the portfolio. You may have specific companies that you like and want to own, such as a favourite bank or food company that you have researched and want to buy. Similarly, in everyday life, you may have experiences that lead you believe that one company is markedly better than another; maybe it has better brands, management or customer service. As a result, you may want to invest in that company specifically and not in its peers.The Dow Jones Industrial Average (DJIA) of 30 large, “blue-chip” corporations has been computed since 1896. Initially, the DJIA was the average price of the stocks. Thus, one would add up the prices of the 30 stocks and then divide by 30. The change in % in the DJIA would then be the change in % in the average price of the 30 shares.
The Dow corresponds to a portfolio that holds one share of each component stock. Therefore, the Dow is called a price-weighted average.
[[Current Dow companies-> Current Dow companies]] involve some very large cooperatives, many of them are household names.The earliest listed company in DJIA is General Electric (of Diversified industrials) in 1907. Some other household names include AT&T, Bank of America, Boeing, Coca-cola, Intel, IBM, Pfizer and Walt Disney.
We can see DJIA cover a compelete range of industries.The S&P 500 stock index represents an improvement over the DJIA in two ways. First, it is a more broadly based index of 500 firms. Second, it is a market-value-weighted index.
Market-value-weighted index means, if company A's outstanding equity is five times larger than company B ($500 million versus $100 million), the S&P 500 would give A five times the weight given to B.
Standard & Poor’s also publishes a 400-stock Industrial Index, a 20-stock Transportation Index, a 40-stock Utility Index, and a 40-stock Financial Index.Investors today can easily buy market indexes for their portfolios. One way is to purchase shares in [[mutual funds-> mutual funds]] that hold shares in proportion to their representation in the S&P 500 or another index. These index funds yield a return equal to that of the index and so provide a low-cost passive investment strategy for equity investors.
Another approach is to purchase an exchange-traded fund, or ETF, which is a portfolio of shares that can be bought or sold as a unit, just as one can buy or sell a single share of stock. Available ETFs range from portfolios that track extremely broad global market indexes all the way to nar- row industry indexes. A mutual fund is a type of investment vehicle consisting of a portfolio of stocks, bonds, or other securities.
Mutual funds give small or individual investors access to diversified, professionally managed portfolios at a low price. Mutual funds are operated by professional money managers.
Mutual funds charge annual fees (called expense ratios) and sometimes commissions, which can affect their overall returns.Just as stock market indexes provide guidance for the performance of the overall stock market, several bond market indicators provide guidance for the performance of various categories of bonds.
The three most well-known groups of indexes are those of Merrill Lynch, Barclays (formerly, the Lehman Brothers index), and Salomon Smith Barney (now part of Citigroup). Table 2.7 lists the components of the bond market in 2009.
The major problem with bond market indexes is that true rates of return on many bonds are difficult to compute. Therefore, these “matrix” prices may differ from true market values. - Zvi. B. et al. (2011) "Investments"The following section is from a report in 2021 by Eric Platt and Aziza Kasumov. (FT)
Measures of volatility in financial markets have hit the lowest levels since the pandemic rocked stock and bond prices last year, as investors bet on tranquility and ride a wave of optimism about the US economic recovery.
The closely followed Vix index, which measures implied volatility on S&P 500 index options, earlier this month dropped below its long-term average of 20 and remained there even during a period of losses for equities last week. On Monday, the Vix ended the day at 17.64, roughly a fifth of the level seen at the most intense point of last year’s shake-out in stocks.
One of the key reasons for stability in big stocks indices, and for lower expectations of volatility, is the rethink among investors over the prospects for various corporate sectors. Since the discovery of vaccines to tackle coronavirus, lockdown-era winners such as tech companies have surrendered some market leadership to beaten-up sectors such as banking and travel.
That leaves some market shifts bubbling beneath the surface while broader indices appear steady.
“Even though tech stocks are quite volatile and financial stocks are quite volatile, the moves cancel each other out,” said Glenn Koh, head of equities trading at Bank of America.
Back to the [[start page->start page]]The following section is from a report on June 24 2016 by Aime Williams. (FT)
UK retail investors faced difficulties trading on Friday morning as the rush to sell stocks following the EU referendum result caused markets to seize up.
... “It’s because of the sheer volume of trades going to auction,” said Danny Cox of Hargreaves Lansdown.
... “Three-quarters of our customers are selling,” said Michelle McGrade, TD’s chief investment officer.
S&P futures are down more than 4%, and FTSE 100 are off 8% ... (investors) clearly embrace momentum of rising risk assets, 10 year US Treasury yield below 1.5% and gold above $1300.
Back to the [[start page->start page]]Common stocks, also known as equity securities or equities, represent ownership shares in a corporation. Each share of common stock entitles its owner to one vote on any matters of corporate governance.
A corporation sometimes issues two classes of common stock, one bearing the right to vote, the other not. Because of its restricted rights, the nonvoting stock might sell for a lower price.
The two most important characteristics of common stock as an investment are its [[residual claim->residual claim]] and [[limited liability-> limited liability]] features.
-sections from Zvi. B. et al. (2011) "Investments"Residual claim means that stockholders are the last in line of all those who have a claim on the assets and income of the corporation. In a liquidation of the firm’s assets the shareholders have a claim to what is left after all other claimants such as the tax authorities, employees, suppliers, bondholders, and other creditors have been paid. -sections from Zvi. B. et al. (2011) "Investments"Limited liability means that the most shareholders can have worthless stock in the event of failure of the corporation -unlike owners of unincorporated businesses, whose creditors can lay claim to the personal assets of the owner (house, car, furniture).Preferred stock has features similar to both equity and debt. Like a bond, it promises to pay to its holder a fixed amount of income each year. In this sense preferred stock is similar to an infinite-maturity bond, that is, a perpetuity. It also resembles a bond in that it does not convey voting power regarding the management of the firm.
Because preferred stock payments are treated as dividends rather than interest, they are not tax-deductible expenses for the firm. This disadvantage is somewhat offset by the fact that corporations may exclude 70% of dividends received from domestic corporations in the computation of their taxable income. Preferred stocks therefore make desirable fixed- income investments for some corporations.
-sections from Zvi. B. et al. (2011) "Investments"Call option : gives its holder the right to purchase an asset for a specified price, called the exercise or strike price, on or before a specified expiration date.
Put option: gives its holder the right to sell an asset for a specified exercise price on or before a specified expiration date.
Prices of IBM options on May 10, 2016:
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Expiration
=|=
Strike
=|=
Call
=|=
Put
|==|
=|=
June
=|=
145
=|=
6.60
=|=
1.57
|==|
=|=
June
=|=
150
=|=
3.31
=|=
3.30
|==|
=|=
June
=|=
155
=|=
1.27
=|=
6.53
|==|
=|=
July
=|=
145
=|=
7.73
=|=
2.58
|==|
=|=
July
=|=
150
=|=
4.43
=|=
4.42
|==|
=|=
July
=|=
155
=|=
2.28
=|=
7.30
|==|Future Contracts are calls for delivery of an asset (or in some cases, its cash value) at a specified delivery or maturity date for an agreed-upon price, called the futures price, to be paid at contract maturity.
The long position: held by the trader who commits to purchasing the asset on the delivery date.
The short position: held by the trader who commits to delivering the asset at contract maturity.
↶↷You, have some savings which you intend to invest in some portfolio. This interactive game is designed for its educational purpose, to suggest better financial decisions and inform the risks. Happy gaming!
You have some following ooptions to look into:
The Bond Market
Equity Securities
Stock and Bond Market Indexes
Derivative Markets