MUST understand interest rates, bonds, notes, bills, all of it. Been flirting with the knowledge for over a year now but have not reached any meaningful solidification.
- a YIELD is the return on an investment, does that mean on any investment? Or only of ‘debt obligations’ like treasuries, or bonds. Just in this sentence alone there are multiple terms I don’t fully understand
- ‘Debt Obligation’ What is a ‘Debt Obligation’. just as it say? An obligation to pay back a debt. Just a fancy, jargoned IOU? What’s the difference between that and a ‘Security’
- ‘Debt Obligation’ = Elitist IOU.
- ‘Money Market’. What is a Money Market
- Again, is the definition just there, blatantly in the name. The Market for Money?
- ‘The money market refers to trading in very short-term debt investments.’
- ‘The money market is a subsection of the fixed income market. We generally think of the term “fixed income” as synonymous with bonds. In reality, a bond is just one type of fixed income security. The difference between the money market and the bond market is that the money market specializes in very short-term debt securities (debt that matures in less than one year). Money market investments are also called cash investments because of their short maturities.’ (Source)
- ‘Money Market Security’ What is a Money Market Security
- ‘Money Market Fund’: Is it just a fund that invests in money market securities? Why wouldn’t an investor just skip the middle man & buy the money market securities themselves? Are they not available for retail investors? Not in that small of size?
- ‘A money market fund is a kind of mutual fund that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short-term maturity (such as U.S. Treasuries).’ (Source)
- Treasuries are Debt Securities issued by the US government & ‘backed by the full faith and credit of the U.S. government.’ however long that lasts lol. what happens when nations fail? Do they default on their debt? Is that what happened in 1970? Why Nixon took US off gold? Were there debt securities issued & backed by gold? What does that mean, what are they backed by now.
- ‘Security’: A security, fungible (mutually interchangeable; identical) negotiable, financial instrument that represents some type of financial value, usually in the form of a stock, bond or option. There are four main types of security: debt securities, equity securities, derivative securities, and hybrid securities
- What is an example of a hybrid security? ‘Hybrid securities include components of both security types, and they accomplish what their underlying assets accomplish: they enable an issuing company to raise capital without having either the full commitment of a bond or the exposure of a stock offering.’
- Examples are Convertible Bonds & Convertible preferred shares. Meaning what they state: they can be converted depending on the conditions of the company. Looks like there’s an underlying agreement, with a clause that grants the option to convert a bond to shares at some agreed on price.
- Debt Vs Equity: Debt is borrowing to raise money, Equity is selling an interest in the company; a portion of the company too raise money. Raising equity is selling off a portion of the company to procure funds to grow it. Both are methods of financing endeavors.
- How does equity in IPO work? How is % of company that’s made public determined? What is an average % of company that’s made public? What if company needs to raise more money after IPO? Can company issue more shares? How does that impact already outstanding shares? Does money raised from IPO go straight from public to company? or to the bank that’s underwriting the IPO? What does ‘underwriting’ mean? Does Company sell the interest to the bank, then the bank turns around & sells it to the public? Where do the private investors come into play? Does company make a deal with bank to sell X% of company, when another x% has already been sold to early, private investors?
- Why doe some stocks have dividends & others don’t?
- Looks like stocks that don’t offer dividends have no yield; yield of 0%
- What are Money Market Securities?
- Companies sell bonds instead of issue shares to raise money more quickly and to do so without having to be regulated as heavily? I think?
- ‘Debt Obligation’ What is a ‘Debt Obligation’. just as it say? An obligation to pay back a debt. Just a fancy, jargoned IOU? What’s the difference between that and a ‘Security’
- ALL of this funnels into the question of, interest rates. What are interest rates. Why does the fed raising interest rates affect stocks negatively. When rates are lowered it means it’s cheap to borrow money, right? Are interest rates banks can charged determined by the government? is it not determined by the private industry on a case by case basis? It’s the
- It’s the cost BANKS pay to borrow funds from the federal reserve.
- So BANKS borrow from the fed, Consumers borrow from the banks, When rates go up for the the banks form the fed, the banks transfer that cost to the customer, which dampens demand in consumers.
- Does the federal fund rate affect credit card debt? Looks like the answer is yes, and for the reasoning form above. Cost for bank to borrow from fed goes up when fed increases federal fund rate, then that cost is offloaded to end consumer via
Overview for today:
- Yield: Yield is the interest rate on debt instruments. It’s what you get paid on top of the principle. the interest you get paid on top of the principle, is it after the specified time has elapsed?
- ‘Yield = Net Realized Return / Principal Amount. For example, the gains and return on stock investments can come in two forms. First, it can be in terms of price rise, where an investor purchases a stock at $100 per share and after a year they sell it for $120. Second, the stock may pay a dividend, say of $2 per share, during the year. The yield would be the appreciation in the share price plus any dividends paid, divided by the original price of the stock. The yield for the example would be: ($20 + $2) / $100 = 0.22, or 22%’ (Source)
So the YIELD, just like the yield of a crop, is what you got out of the investment, after everything. & it’s expressed as a percentage compared to the original investment. Stop making it so complicated.
- ‘Yield = Net Realized Return / Principal Amount. For example, the gains and return on stock investments can come in two forms. First, it can be in terms of price rise, where an investor purchases a stock at $100 per share and after a year they sell it for $120. Second, the stock may pay a dividend, say of $2 per share, during the year. The yield would be the appreciation in the share price plus any dividends paid, divided by the original price of the stock. The yield for the example would be: ($20 + $2) / $100 = 0.22, or 22%’ (Source)
- A Debt Obligation is just what it says, an obligation to pay a debt. A