Transcript Financial Assets

Introduction
A. Caggia – M. Armanini
Financial Investment & Pricing
2016-2017
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Why are you here ?
Prerequisite: math (NPV, IRR…)
statistics (normal distribution,
probability theory…),
 Goal: gain the basic tools to value
(any?) financial assets
 Why: professional career in Finance,
managing personal investments,
become literate in Finance

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Self assesment
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If I invest 100 today and receive 121 euros in two years time the
compounded interest rate I receive is equal to …
The Net Present Value of 100 euros that I will be receiving in three
years time calculated at a 10% compounded yearly is… (show calc)
When interest rates increase the price of a fixed coupon bond
increase/decrease/no change. Why?
If interest rates are at 10%, a 10% coupon bond is trading at …
If interest rates decrease I am better off if I own a 10 year bond, a 5
year bond or have cash ? Why?
If the performance of my portfolio in the last 5 years has been
respectively +20%, +10%, -10%,+5%, -25% I am achieving a
positive/negative/zero return? Show calc
If the price of a share increases by 60% in year 1 and decreases by
50% the following year I am flat/losing/gaining? Show calc
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What will we be doing?
Look at the world from the investor
point of view
 What can I invest in?
 Which is the risk return profile of a
single asset?
 How should I find the fair price of a
financial asset?
 How a portfolio behaves?

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Corporate Finance vs
Financial Investmens
 Different
sides of the same coin
Corporate
finance: identify funding
needs and raise capital
Financial Investment: invest in a risk
return efficient fashion
 In
the middle: Investment Banks
and Financial Engeneering
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Logistics

Our mails are:
 [email protected]
 [email protected]
Read material before coming to class
 What to read/study
 Exam
 Behaviour/contract

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Investments & Financial
Assets

Essential nature of investment
 Reduced
current consumption
 Planned later consumption or investments

Real Assets
 Assets
used to produce goods and
services

Financial Assets
 Claims
on real assets
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Role of Financial Assets and
Markets in the Economy
 Consumption
 Allocation
Timing
of Risk
 Separation
of Ownership
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Financial System Clients and
Their Needs
 Household
Primary
 Business
Primary
Sector
need: invest funds
Sector
need: raise funds
 Government
Primary
Sector
need: raise funds
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Financial Assets
What can I invest in?
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Financial Assets or
Securities
 Debt
Money
market instruments
Bonds
 Equities
 Forex
 Commodities
 Derivatives
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Debt – Money Market
instruments
Treasury Bills (ex. BOT)
 Certificates of Deposit
 Commercial Paper
 Bank Loan
 Euribors
 Repurchase Agreement (repos) and
Reverse RP
 Central Bank Funds

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Debt – Bonds

Treasury Bond (ex. BTP)

Agency and Supranational Issue

Asset Backed Security

Corporate Bond
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Common and Preferred
Stocks

Common Stock
 Residual claim
 Limited liabilities

Preferred Stock
 Fixed
dividend rate
 Priority over common
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Commodities

Energy
 Oil,
natural gas, carbon, electricity,
emissions

Metals
 Base
Metals: copper, nickel, aluminium,
zinc
 Precious Metals: gold, silver, platinum

Agriculture
 Soy
beans, wheat, rice
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Derivatives Securities

Options
 Basic
positions: call (buy), put (sell)
 Terms: exercise price, expiration date,
assets

Futures
 Basic
positions: long (buy), short (sell)
 Terms: delivery date, assets
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Other

Any mixture of the above mentioned:
convertible bonds, warrants, rights,
hibrids, hedge funds …
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What do they have in
common ?

Cash Flow Streams
 Deterministic
 Uncertain

(in amount and/or timing)
Need to compare them to efficiently
allocate resources (pricing)
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How securities are traded
Equity
 Bonds
 Money Market instruments
 FX
 Commodities
 Futures and Options
 Funds

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