tailieunhanh - Charles J. Corrado_Fundamentals of Investments - Chapter 3

CHAPTER 3 Security Types You invest $5,000 in Yahoo! common stock and just months later sell the shares for $7,500, realizing a 50 percent return. Not bad! At the same time, your neighbor invests $5,000 in Yahoo! stock options, which become worth $25,000 at expiration | CHAPTER 3 Security Types You invest 5 000 in Yahoo common stock and just months later sell the shares for 7 500 realizing a 50 percent return. Not bad At the same time your neighbor invests 5 000 in Yahoo stock options which become worth 25 000 at expiration a 400 percent return. Yahoo Clearly there is a big difference between stock shares and stock options. Security type matters Our goal in this chapter is to introduce you to some of the different types of securities that are routinely bought and sold in financial markets around the world. As we mentioned in Chapter 1 we will be focusing on financial assets such as bonds stocks options and futures in this book so these are the securities we briefly describe here. The securities we discuss are covered in much greater detail in the chapters ahead so we touch on only some of their most essential features in this chapter. For each of the securities we examine we ask three questions. First what is its basic nature and what are its distinguishing characteristics Second what are the potential gains and losses from owning it Third how are its prices quoted in the financial press Classifying Securities To begin our overview of security types we first develop a classification scheme for the different securities. As shown in Table financial assets can be grouped into three broad categories and each of these categories can be further subdivided into a few major subtypes. This 2 Chapter 3 classification is not exhaustive but it covers the major types of financial assets. In the sections that follow we will describe these assets in the order they appear in Table . Table Classification of financial assets Basic types Major subtypes Interest-bearing Money market instruments Fixed-income securities Equities Common stock Preferred stock Derivatives Options Futures When we examine some of these security types in more detail we will see that the distinctions can become a little blurred particularly with some more .

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