17: Financial Markets
- Page ID
- 181249
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 17.0: Introduction
- This page covers home ownership and the effects of the 2008 financial crisis, highlighting a drastic drop in U.S. housing equity from $13 trillion to $8.8 trillion, leading to a $14 trillion loss in homeowner wealth by 2010. It also discusses how businesses secure financial capital, the contributions of households, various investment options, and the function of financial markets in connecting investors with companies seeking funds, along with methods for personal wealth accumulation over time.
- 17.1: How Businesses Raise Financial Capital
- This page outlines the significance of financial capital for businesses, covering sources such as personal funds, angel investors, and corporate financing methods like borrowing, bonds, and stock issuance. It highlights the distinction between private and public companies, explaining shareholder returns via dividends and capital gains.
- 17.2: How Households Supply Financial Capital
- This page presents key financial concepts involving savers, banks, and borrowers, focusing on the role of banks as intermediaries. It discusses various savings options, risks associated with investments, and the significance of present discounted value in bond and stock evaluations. Trends in the stock market, including major indices and historical performance, are highlighted, along with the importance of diversification through mutual funds. The U.S.
- 17.3: How to Accumulate Personal Wealth
- This page discusses wealth accumulation through education and early saving, stressing compound interest, while challenging stock picking due to unpredictable market fluctuations. It examines the role of financial markets in connecting capital seekers and investors, linking this to the 2007 U.S. housing crisis that triggered the Great Recession.
- 17.4: Key Terms
- This page defines key financial concepts, covering types of investments (bonds, stocks), banking instruments (checking, savings accounts), and strategies (diversification, mutual funds). It explains important terms such as actual rate of return, capital gains, coupon rate, and liquidity.
- 17.5: Key Concepts and Summary
- This page discusses ways businesses can raise financial capital, including personal savings, credit cards, and investors. It distinguishes between bonds, which are loans, and stocks, which indicate ownership. It also contrasts private and public companies, highlighting the role of shareholders and boards. Additionally, it mentions how households contribute capital through banks and emphasizes the importance of education and early saving for wealth accumulation.
- 17.6: Self-Check Questions
- This page explores early-stage corporate finance issues, including fundraising methods for small companies, the advantages of private investments and IPOs, and the comparison of bonds and bank loans. It discusses equity calculations for homeowners, the information asymmetry in venture capital, and compares returns on stocks, bonds, and savings. Additionally, it addresses interest calculations and investment growth through examples.
- 17.7: Review Questions
- This page discusses financial concepts for start-ups and investment, including capital-raising methods, the limitations of profit reliance, and bank preferences for established firms. It defines key terms like bonds, stocks, dividends, and capital gains, and differentiates between private and public companies.
- 17.8: Critical Thinking Questions
- This page examines financial decision-making, highlighting the trade-offs between borrowing and equity for expansion, investment strategies across age groups, and barriers to capital access. It addresses company failures despite precautions and the repercussions of bank failures on economic downturns. Additionally, it contrasts actively managed portfolios with randomly selected investments in terms of their outcomes.
- 17.9: Problems
- This page explores various financial scenarios related to investments and bonds. It examines shareholder influence in the Darkroom Windowshade Company, analyzes bond purchases affected by interest rates, calculates bond valuation amidst rising rates, determines investment amounts needed for savings goals, and compares the long-term benefits of direct investments against retirement fund contributions over 30 years.