Bonds vs Stocks

Market Downturn Characteristics

• A market downturn is characterized by falling asset prices, indicating a decrease in investor confidence.
• This can be seen in declining stock prices, lower bond yields, and a general sense of pessimism within the market.

Mortgage-Backed Securities

• Mortgage-backed securities are a type of bond backed by mortgages, meaning the payments from the underlying mortgages are used to make interest payments and principal repayments to bondholders.
• They can be seen as a way to securitize mortgages, making them more liquid and tradable in the financial markets.

Callable Bonds

• The issuer, not the bondholder, has the authority to call back a callable bond.
• This means the issuer has the right to redeem the bond before its maturity date, usually at a predetermined price.

Bonds and Credit Risk

• Bonds that offer a higher yield typically provide the bondholder with more control against credit risk.
• A higher yield usually reflects a higher risk associated with the borrower, so investors are compensated for taking on that risk.
• This higher yield can be viewed as a form of protection against default by the issuer.

Registered Bonds vs. Bearer Bonds

• A distinguishing feature of registered bonds is that the bondholder's name is registered with the issuer, making it traceable for taxation and ownership purposes.
• Conversely, bearer bonds, also known as "coupon bonds", do not require registration and allow for anonymous ownership.

Currency's Biggest Enemy

• Inflation is considered the biggest enemy of a currency.
• This is because rising prices erode the purchasing power of a currency, essentially making it worth less over time.

Monetary Policy for Inflation Control

• A contractionary monetary policy is essential to control inflation.
• This policy involves raising interest rates, tightening credit conditions, and reducing the money supply.
• These measures slow down economic activity and help to curb inflation by lowering demand.

M1 Money Supply Definition

• M1 money supply represents the most liquid forms of money, including physical currency (coins and banknotes), demand deposits (checking accounts), and traveler's checks.

U.S. Treasury Securities with Maturity Less Than 1 Year

• U.S. Treasury bills are a category of U.S. Treasury securities with a maturity of less than 1 year.
• They are essentially short-term debt instruments issued by the U.S. government to finance its operations.

Issuer of Municipal Bonds

• State and local governments issue Municipal bonds, also known as "munis".
• These bonds are used to fund projects that benefit the public, such as infrastructure, schools, and hospitals.

IPO Meaning

• IPO stands for Initial Public Offering.
• This is the process by which a private company goes public, offering shares of its stock for sale to the public for the first time.

Primary Securities Market

• The primary securities market is the market where new securities are first issued and sold to investors.
• This is where companies raise capital by selling their stock or debt instruments directly to the public.

New Securities Registration Requirement

• The Securities Act of 1933 requires a detailed prospectus to be filed with the Securities and Exchange Commission (SEC) for the initial registration of new securities.
• This prospectus provides investors with essential information about the company and the securities being offered for sale.

Market Capitalization Explained

• Market capitalization represents the total market value of a publicly traded company's outstanding shares.
• It is calculated by multiplying the company's stock price by the number of outstanding shares.

NYSE vs. NASDAQ Trading

• Shares typically trade on the New York Stock Exchange (NYSE) through an auction system, where buyers and sellers compete to determine the best price.
• On the other hand, the NASDAQ uses a dealer network system, where market makers facilitate trading.

US Treasury Security Categories

• The three categories of US Treasury securities are:
  • Treasury Bills (maturity less than 1 year)
  • Treasury Notes (maturity between 1 and 10 years)
  • Treasury Bonds (maturity over 10 years)

U.S. Interest Rate Setter

• The Federal Reserve, also known as the Fed, is the monetary policy authority responsible for setting interest rates in the U.S.
• The Fed's decisions on interest rates have a significant impact on the overall economy.

Stock vs. Bond Key Difference

• One key difference between stocks and bonds is that stocks represent ownership in a company, while bonds represent a loan to a company or government.
• Stockholders are equity owners, while bondholders are creditors.

Euribor Rate explained

• The Euribor (Euro Interbank Offered Rate) is a measure of the average interbank lending rate in the Eurozone.
• It provides a benchmark for interest rates on various financial instruments, such as loans and deposits.

Corporate Short-Term Borrowing

• Commercial paper allows companies to borrow money from other companies short term.
• It is considered a form of unsecured debt and is typically used for working capital needs.

Liquidity of M2 Money Supply

• The M2 money supply is considered less liquid than M1, as it includes savings deposits, money market mutual funds, and time deposits.
• These components require a conversion step to become readily spendable.

Stocks vs. Bonds Risk

• Stocks generally considered riskier investments than bonds due to their potential for both higher returns and higher losses.
• Stocks have a higher risk because they are tied to a company's performance, which can fluctuate.
• Bonds generally offer lower returns, but the risk of losing principal is lower, as they are backed by the issuer's promise to repay the loan.

Federal Reserve's Inflation Target

• The Federal Reserve (Fed) has a targeted inflation rate of 2%.
• This target rate is believed to be optimal for a healthy economy.

Equity Shareholder Income Potential

• Equity shareholders potentially receive income from dividends and capital gains.
• Dividends are payments made by a company to its shareholders, while capital gains represent the profit made from selling shares at a higher price than they were bought for.

Company Preference for Stock Issuance

• A company might prefer to issue stock rather than bonds when it wants to raise capital without taking on additional debt.
• Issuing stock allows the company to sell a portion of its ownership to investors without having to make interest payments on borrowed money.

Higher Return on Investment Significance

• A higher return on investment typically indicates a more profitable or successful investment.
• However, it's vital to consider the risk associated with a higher return, as higher returns often come with higher risk.

Return on Investment Calculation

• In a scenario where you buy a stock for 660,receiveadividendof660, receive a dividend of 660,receiveadividendof50, and sell it for $630, the return on investment would be calculated as follows:
  • Total Return: 630(saleprice)+630 (sale price) + 630(saleprice)+50 (dividend) - 660(purchaseprice)=660 (purchase price) = 660(purchaseprice)=20.
  • Return on Investment: (20/20 / 20/660) * 100% ≈ 3.03%.

U.S. Treasury Note Return

• The expected return on a US T-note purchased at a price of 96.50 with a coupon rate of 2.5% would depend on the maturity date of the bond.
• The coupon rate of 2.5% suggests that the bond will pay 2.5% of its face value annually.
• However, the purchase price being below par (96.50) means there will be potential capital gains when the bond matures, assuming it stays at par till maturity.

Interest Rate Difference Explained

• The difference between the interest rates of a 10-year AA bond at 4.25% and a 10-year T bond at 3.70% is called the "credit spread."
• The credit spread reflects the difference in risk perceived between the two investments.
• AA-rated bonds are considered safer than T-bonds, so the higher yield on the AA bond is the market's way of compensating investors for taking on the slightly higher risk.

Money Supply and GDP Relationship

• When Money Supply is increasing by 3% while GDP rises by 3.5%, this scenario could illustrate a healthy economic environment.
• The growth in the money supply could be contributing to the growth in GDP.
• This is a good sign because it suggests that the economy is expanding and money is flowing through the system effectively.

Shareholder vs. Bondholder Risk

• Shareholders bear more risk than bondholders because their returns are linked to the company's success, while bondholders are guaranteed to receive their interest payments and principal back, providing a level of security.
• Shareholders have upside potential but also could face negative consequences if the company does poorly.

Low Debt-to-Equity Ratio Impact

• Maintaining a low debt-to-equity ratio often strengthens a company's financial position.
• It indicates that the company relies more on equity financing than debt, making it less vulnerable to financial distress.

Apple's Largest Investment Unrealized Gain or Loss

• The largest investment by Apple in 2021 was in U.S. Treasury securities which experienced a net unrealized gain in fair value. This indicates that Apple made a profit on this investment.
• Specific details of net unrealized gain/loss would be found in the footnotes of their financial statements.

Apple's Largest Investment Decreased Fair Value

• The investment with the largest decrease in fair value from 2020 to 2021 for Apple was in its current marketable securities portfolio.
• This means that the value of Apple's investments in short-term securities had gone down.
• The decrease in fair value could be attributed to a variety of reasons, including market fluctuations or a change in investment strategy.

Percentage of Fixed Rate Debt in Apple's Total Long-Term Debt

• The specific percentage of Apple's total long-term debt in 2021 that was fixed rate debt would be found in the footnotes of their financial statements.

Total Change in Apple's Portfolio Assets based on Fair Value

• The total change in Apple's portfolio assets based on fair value from 2020 to 2021 can be found in Apple's financial statements.
• The change in overall asset value is important for understanding the performance of Apple's investment strategy.

Apple's Assumption About Future Interest Rates

• According to Apple's Note 7, the company is making an assumption about future interest rates.
• This assumption may be stated in a general way in the disclosure section, like "assumptions about future interest rates are based on current market conditions".
• Apple's assumption about future rates helps them to estimate potential gains and losses on their debt investments.

Value of U.S. Treasury Securities in Apple's Investments

• The value of U.S. Treasury securities in Apple's 2021 investments would be found in their financial statements, specifically in the section detailing their investment portfolio.

Apple's Largest Investment in Fair Value

• The largest investment in fair value reported by Apple in 2021 would be found in their financial reporting.
• Look for a breakdown of investment holdings and the corresponding fair value.

Percentage of Apple's Portfolio Made Up of STI, Current Marketable Securities

• The percentage of Apple's portfolio that is made up of STI (Short Term Investments), Current Marketable Securities, would be found in their financial statements.
• It will be detailed in the section on investment holdings and their breakdown by asset type.

Similarity Between Preferred Stock and Bonds

• Preferred stock resembles a bond in terms of its fixed dividend payments.
• Like a bond, preferred stock has a set dividend rate, just like a bond's fixed interest payment.

Distinguishing Feature Between Preferred Stock & Common Stock

• Preferred stock differs from common stock in terms of voting rights.
• Preferred stockholders typically have limited or no voting rights, unlike common stockholders who have the right to vote in company decisions.

Inflation Rates of Various Countries

• Information about inflation rates in different countries would be found in economic data reports and statistics released by official sources such as central banks and international organizations.
• The text does not provide specifics on inflation rates for specific countries, but you can find this information by researching reliable economic data sources.

Inverted Yield Curve in France

• A slightly inverted yield curve in France might suggest that investors believe the French economy is headed for a period of slower growth or even a recession.
• An inverted yield curve occurs when short-term interest rates are higher than long-term interest rates, which is typically seen as a potential signal of an economic slowdown.

Credit Spread Between Japan and Zambia

• The credit spread between Japan and Zambia based on their 10-year yields reflects the difference in risk associated with holding debt from these two countries.
• Zambia generally has a significantly higher credit spread compared to Japan, indicating a much higher risk of default for Zambian debt.
• This spread is reflected in the difference between their 10-year yields.

Country with Struggling Currency

• The text does not specify any particular country with a currency struggling for survival, and this is not a typical aspect of a general finance topic.
• However, many economic indicators and financial reports would be available online to understand which countries might be facing currency instability.

Preferred Stock vs. Bond Dividends

• A key difference between the dividends paid by preferred stock and bonds is that preferred stock dividends are not guaranteed.
• The dividend payment for preferred stock is decided by the issuing company's board of directors based on company performance and profit, similar to a common stock dividend.
• Bond interest payments are typically fixed and contractual, meaning the borrower is obligated to make scheduled payments, regardless of the company's financial performance.

Market Position of Preferred Stockholders

• Preferred stockholders generally have a higher claim on company assets and profits than common stockholders.
• They are considered to be in a more senior position and are paid their fixed dividends before common stockholders receive any.