Modern Portfolio Theory and

Investment Analysis, 9th Edition

Elton, Gruber, Brown, & Goetzmann
Chapter 2: Financial Securities
 Types of Marketable Financial Securities
 The Return Characteristics of Alternative Security
Types
 Stock Market Indexes
 Bond Market Indexes
 Conclusion
Many ways to categorize financial securities
Types of Marketable Financial
Securities
 Money Market Securities
 Treasury Bills
 Repurchase Agreements (Repos)
 Other Short-Term Instruments
 The London Interbank Offered Rate (LIBOR)
Types of Marketable Financial
Securities (cont.)
 Capital Market Securities
 Fixed Income Securities
 Treasury Notes and Bonds
 Federal Agency Securities
 Municipal Bonds
 Corporate Bonds

 Not-So-Fixed Income Securities

 Preferred Stock
Types of Marketable Financial
Securities (cont.)
 Capital Market Securities (cont.)
 Asset-Backed Securities
 Mortgage-Backed Securities

 Common Stock (Equity)

 Derivative Instruments

 Indirect Investing
The Return Characteristics of
Alternative Security Types
 Investors like high return but don’t like high
risk
 Several factors that should affect risk
 Returns should be consistent with risk
Stock Market Indexes
 The oldest continuously quoted index of stock
price performance in the U.S. is the Dow Jones
Industrial Average Index (DJIA).
 Price-weighted average of 30 large “blue chip”
stocks.
 Next most popular U.S. stock market index is
the Standard and Poor’s Composite 500 stock
index (S&P 500)
Bond Market Indexes
 Although almost all of the major stock market
indexes exclude dividends are thus are not
total return indexes, the major bond indexes
are total return indexes, for they include
interest payments as well as capital gains.
 The best known bond indexes are constructed
by Barclays, FTSE, and MSCI
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