ECONOMICS 251N13
DR. WILLIAM SHINGLETON
FALL 2005
EDIT IN 14 POINT FONT
NOV29/ FINANCIAL MARKETS CH 32
FINISH FARM POLICY
AGRICULTURE
IS VERY HARD WORK
ROLE OF FINANCIAL MARKETS
INTERMEDIARIES
REDUCE
SEARCH AND INFORMATION COSTS
ECONOMIES
OF SCALE IN INFORMATION
ECONOMIES
OF SCALE IN RISK
INTEREST RATES
BALANCE
THE SUPPLY AND DEMAND FOR FUNDS
RISK PREMIUMS
TAX
FACTORS
LIQUIDITY
FACTORS
PRESENT DISCOUNTED VALUE CALCULATIONS
USE
INTEREST RATE
DISCOUNT
FUTURE EARNINGS
PDV
= FUTURE PAYMENT/DISCOUNT FACTOR
DISCOUNT
FACTOR INCREASES WITH TIME TO PAYOFF
MARKET FOR LOANABLE FUNDS
MEASURING
QUANTITY
MEASURING
PRICE
INTEREST
RATE
RISK
RISK
PREMIUM
PRESENT
VALUE
SUPPLY
PERSONAL
SAVING
RETAINED
EARNINGS
FOREIGN
INVESTMENT BY OTHERS
DEMAND
INVESTMENT
PERSONAL
LOANS
FOREIGN
INVESTMENT BY
EQUITIES
INITIAL
PUBLIC OFFERING
DIVIDENDS
SECONDARY
MARKET
MARKET
DEPTH
$$$ NOT THE NUMBER OF SHARES
REACTING
TO NEW INFORMATION
FIRM
SPECIFIC INFORMATION
BROAD
ECONOMIC TRENDS
CAPITAL
GAINS
P/E
RATIO PRICE/EARNINGS
RATIO
CURRENT
PRICE
PAST
EARNINGS
EXPECTED
RETURN
EXPECTED
PDV =
(DIVIDENDS
+ CAPITAL GAINS)
DIVIDED
BY
PURCHASE PRICE
EXPECTED
FUTURE PRICE
CHANGE
IN EXPECTATIONS
BROAD
CHANGES IN THE ECONOMY
SHOCKS
BOND MARKET
MARKET
PRICE
FACE
VALUE
MATURITY
DATE
YIELD
LOANS
COUPON
RATE
CURRENT
YIELD
TAXABLE?
DEFAULT
RISK
PREMIUM
EXPECTED
PROFIT AS INSURANCE
SECONDARY
MARKET
LIQUIDITY
MARKET
DEPTH
MOVES
FUNDS TO NEW PARTIES