|
Chapter 5 |
|
|
Corporate
borrowings (Debts) |
Two types of
debts: Loan = Private
debt Bonds = Public
debt |
|
Loan provided by
financial institutions |
Loan for day-to-day
operations = working
capital loans Equipment or
property purchasing = transaction
loans |
|
Pro and cons of
Debt Placements |
Advantages: ·
Speed ·
Cost reducing ·
Financial flexibility ·
Freedom to choose investor. ·
Save cost and time. Disadvantages: ·
Interest costs ·
Less potential investor |
|
Three basic
functions of investment |
1.
Underwriting ·
Underwriting as a middleman between company and
investor in the stock markets. ·
Underwriting(包销)do not have to bear the risk of
securities(证券) not finish
sold. ·
Suitable for those company who are lack of
visibility and experience but needed to raise funds quickly. 2.
Advising证卷咨询 3.
Distributing证卷发行 |
|
Basic features
of bond |
·
Par value/face value ·
Coupon Interest rate ·
Maturity and repayment of principal ·
Risk and rating ·
Tax status |
|
Yield to
Maturity (YTM) |
Also, know as
expected return, refer to the final return of interest and profit at the end
of the repayment period. 也称为预期收益，是指还款期末的最终利息和利润收益。 |
|
Bond value |
Formula: = (PV of bonds
interest+ PV of face value) |
|
Yield to
maturity |
Formula： A= (NPV a / NPV
a- NPV b) * rate b- rate a |
|
Type of yield |
·
Nominal Yield ·
Current Yield ·
Yield to maturity ·
Yield to call |
|
Difference
between current yield and YTM |
Current yield当期收益率 ·
The actual profit that straight produce by interest. ·
Not show total return in future Yield to
maturity到期收益率 ·
The total rate of return that receive with the bonds
after it grows mature. ·
The most useful type of yield that investor pay
attention to. |
|
Relationship
between YTM and bonds value |
·
The value of bonds was inversely related to changes
in the market that requires YTM. ·
The value of bonds will be lesser than the par value if
the market is requiring YTM. ·
While reaching maturity date, the value of bonds
approaches its par value. ·
Longer YTM bonds usually have a greater interest rate
then the short YTM bonds. |
|
Characteristic
of bonds |
·
Coupon level ·
Abnormal risk ·
Convertibility ·
Amortizing / non-amortizing ·
Security / insecurity ·
Initial offering market ·
Priority of claiming |
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