Investment
-redirecting resources you would consume for the future
Financial Assets
-claims on property and income of the borrower
Financial Intermediaries
- institution that channels funds from savers to borrowers
- savers --> financial institutions --> investors
- Purposes for Financial Intermediaries
- Share Risks
- diversification
- spreading out your investment to reduce risk
- Providing Information
- stock broker to help you in the market
- Liquidity, easily converted to cash
- Returns
- amount an investor receives above and beyond the sum of money that was initially invested
- dividends
- check
Bonds
- loans or I.O.U.s that represent a debt that the government or corporation must repay to an investor
- low risk investments
- Bonds, YOU LOAN
- Stocks, YOU OWN
- Components :
- Coupon Rate
- interest rate that a bond issuer will pay to a bond holder
- Maturity
- time at which payment to a bond holder is due
- Par Value
- amount that an investor pays to purchase a bond at that will be repaid to an investor at maturity
Yield
- annual rate of return on a bond if the bonds were held at maturity
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