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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?

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

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  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.

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