1 / 21

What are the two main ways established companies can raise money?

What are the two main ways established companies can raise money?. Securities. Securities * : Stocks – equity financing Bonds – debt financing money market instruments: (derivatives, futures, options) * vrijednosnice, vrijednosni papiri. BONDS. MK, U 16 (p 81). Bonds. What is a bond?

hova
Download Presentation

What are the two main ways established companies can raise money?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. What are the two main ways established companies can raise money?

  2. Securities Securities*: Stocks – equity financing Bonds – debt financing money market instruments: (derivatives, futures, options) * vrijednosnice, vrijednosni papiri

  3. BONDS MK, U 16 (p 81)

  4. Bonds What is a bond? Who buys / sells / issues bonds? Why do they do it?

  5. Introduction to Bonds (video) http://www.investopedia.com/video/play/understanding-bonds Definition of bonds? Term used for the price of a bond on the primary market? Maturities mentioned? Coupons mentioned? Why do corporations/governments issue bonds? What is important to remember about bonds?

  6. ebt What is a bond? • A d____ instrument issued by governments, corporations and other entities in order to finance projects or activities. A l____ that investors make to the bond’s i______. Term used for the price of a bond on primary market? • F____ value. What is the face value of a bond? • The amount l_____ to the issuer. What does the investor receive in exchange for the loan? • Interest, known as c______. oan ssuers ace ent oupon

  7. What is maturity? • The time when a financial instrument (such as a bond or an insurance policy) becomes ready to be p_____. Bonds are issued for a specified period of time. Maturities mentioned? • 1 year, 3 years or 30 years Coupons menioned? • 8% Why do corporations/govts. issue bonds? • To fund capital projects / public projects aid

  8. What is important to remember about bonds? • The higher the interest rate, the more/less risk it is likely to carry. • The higher the interest rate, the more risk it is likely to carry.

  9. Debt Finance vs.Equity Finance • Reading: BONDS(MK, p.81) Readthetextandunderline: • Twomainwaysgovernmentscanraisemoney? • Twomainwaysestablishedcompaniescanraisemoney?

  10. Debt Finance vs.Equity Finance(MK, p.81) bond interest is tax deductible WHAT DOES IT MEAN? generally safer debt increases a company’s financial risk HOW? shares pay a higher return

  11. More about bonds (MK, p.81) Meaning of T-notes, T-bonds and gilts? Who are market makers? Bid vs. offer price? What is a spread? What is inversely related? What does the yield of a bond depend on?

  12. More about bonds (MK, p.81) dged • Meaning of T-notes, T-bonds and gilts? Treasury notes, treasury bonds and gilt-e_____ stock (UK)

  13. SECURITIES* (part II): BONDS (U16) DEBT FINANCING ( = loans)Risk rating: AAA (best) to C (worst) Companies: BONDS an interest paying loan which can be traded on bond markets securities, papers * vrijednosnice Governments: LONG-TERM BONDS: GILTS – GB TREASURY BONDS-USA TREASURY NOTES-USA SHORT-TERM BONDS: TREASURY BILLS (3-MONTH)

  14. More about bonds (MK, p.81) dged • Meaning of T-notes, T-bonds and gilts? Treasury notes, treasury bonds and gilt-e_____ stock (UK) • Who are market makers? Banks & b________ companies which q____ bid and offer price. • Bid vs. offer price? _____ – the highest price that the buyer is willing to pay_____ – the price asked by sellers • What is a spread? D________ between the bid & offer prices (bid/ask or buy/sell) • What is inversely related? I_____ r____ in the economy & the price of existing bonds.WHY? • What is the yield of a bond and what does it depend on? I______ given by a bond. It depends on its c______ and its purchase price. rokerage uote Bid Offer ifference nterest ate ncome oupon

  15. More about bonds (MK, p.81) • Meaning of T-notes, T-bonds and gilts? Treasury notes, treasury bonds and gilt-edged stock (UK) • Who are market makers? Banks & brokerage companies which quote bid and offer price. • Bid vs. offer price? Bid – the highest price that the buyer is willing to pay Offer – the price asked by sellers • What is a spread? Difference between the bid & offer prices (bid/ask or buy/sell) • What is inversely related? Interest rates in the economy & the price of existing bonds.WHY? • What is the yield of a bond and what does it depend on? Income given by a bond. It depends on its coupon and its purchase price.

  16. Comprehension, MK p 82 1 F 2 T 3 T 4 F 5 T 6 F 7 F 8 F

  17. Vocabulary, MK p 82 1 cash flow 2 equity 3 mutual funds 4 pension funds 5 principal 6 maturity 7 coupon 8 insolvent or bankrupt 9 creditors 10 dividends 11 market makers 12 bid / bid price 13 offer / offer price 14 yield

  18. Match up verbs with nouns, 82

  19. HW:The Financing of Corporate Activity, RBp77Based on: McConnell, C.R., Brue, S.L. (1996). Economics. McGraw-Hill Inc. Do exercises I, II & III IV Read and match headings with paragraphs

  20. The Financing of Corporate ActivityBased on: McConnell, C.R., Brue, S.L. (1996). Economics. McGraw-Hill Inc. Featuresofwell-organizedwriting: • Textheadings • Topicsentences • Paragraphing • Connectors HW: V RB, p 79 – Make notes on thetextusingthe table on p 79

  21. E.g. notes:CORPORATE FINANCE Full text: Generally speaking, ...... three different ways... First, ..., Second, ..., For example, ...Third,... Notes: THREE WAYS OF CORPORATE FINANCE: 1. 2. .... (e.g. ... ) 3.

More Related