financialinstruments金融工具-wenkub.com
2025-05-06 13:52 本頁面
【正文】 B,Moody’ s AAA – High creditworthiness BBB – Adequate CCC Poor D – Default Bond ratings and interest rates 15 Junk Bonds Investment grade is “ BBB” and above. Junk bonds are speculative or high yield bonds and are below investment grade. Junk bond market is an alternative to bank and insurance pany loans for smaller, less prominent panies. Junk bonds have been used to finance mergers and acquisitions. 16 EQUITY or COMMON STOCK Residual ine securities Represent ownership securities proportionate to shareholding Right to control Voting rights Shareholders are represented through a board of directors, through which they exercise control. Right in liquidation – residual claim over assets Riskier than debt instruments 17 Risk and return What is the expected rate of return on equity? Rate of return =Dividend yield + capital appreciation = Div/Mkt price + % change in share price Risk –return tradeoff : Higher the risk in an investment , higher the expected returns Equity investors expect a risk premium to pensate for the enhanced risk So return on equity = Risk free rate + Risk premium Risk free rate taken as Govt. Bond rate Risk premium (Table 51) = = % 18 Common stock (contd) Advantages to investor * Higher returns than debt * Liquidity * Wealth sharing Disadvantages to investor * Higher risk * Dividend payment not mandatory 19 Common stock (contd) Advantages to issuer * Dividend payment not mandatory * No redemption cash outflows * Higher equity means better borrowing ability Disadvantages * Costlier source of funds than debt * Dilution in control * Dividends not tax deductible (unlike interest) 20 A note on retained earnings…… Readily available source of funds internally (internal equity) No issue costs No dilution in control Reflects the robustness of pany’ s health and reduces dependance on outside funding The only point to be remembered is that retained earnings also has a cost in terms of opportunity cost to investors 21 Higher priority over mon stockholders in payment of dividends and in repayment of capital Annual fixed dividend at coupon rate x par value Dividend is discretionary Cumulative dividends feature Dividend not tax deductible for issuer No voting rights except in matters which concern them PREFERRED STOCK 22 Preferred stock (contd) To the investor : Lesser risk , but lesser returns and less liquid than mon stock To the issuer : Lesser cost, dividend payment not mandatory (but not tax deductible), no loss of control 23 MARKET CHANNELS Market Channels for raising funds Private equity Venture capital Initial public offers (IPOs) and seasoned equity issues (SEOs) Shelf registration Private placement International markets 24
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