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Chapter 10 - Bonds and stocks - Characteristics and valuations. This chapter includes contents: Identify the major sources of external long-term financing for corporations, describe major characteristics of corporate bonds, identify the reasons why investors seek stocks for an investment vehicle,. | Chapter 10 Bonds and Stocks: Characteristics and Valuation © 2011 John Wiley and Sons Chapter Outcomes Identify the major sources of external long-term financing for corporations. Describe major characteristics of corporate bonds. Identify the reasons why investors seek stocks for an investment vehicle. Describe major characteristics of preferred stock and common stock. Describe the process for issuing dividends by a firm. Explain how financial securities are valued in general and specifically for bonds and stocks. What is a financial asset? A claim against the income or assets of an individual, business, or government. Examples: Shares of stock Home Mortgage Car Loan Long-term Financing Sources for Business New security issues 2008 2009 Corp Bonds 80.7% 93.8% Corp Stocks 19.3 6.2 Bonds Public 86.5% 82.8% Sold abroad 13.5% 17.2% Net Long-term Financing Sources for Business 2008 2009 Bonds 93.6% 69.0% Common Stock -41.2 -4.6 Internal Financing 47.6 35.6 As we see, in addition to retained earnings, businesses can raise funds by: Selling shares (external equity) Issue debt (bonds) Funds can be raised publicly or privately History Shows . Internal/external financing varies over the business cycle Common stock is a major source of external equity Bonds are a major source of long-term external financing cheaper than equity bonds mature And Overseas Financing Has Risen Over Time. More real assets are overseas for U.S.-based firms At times, financing costs are lower overseas No costly SEC process Large issue sizes require a global marketplace Debt Capital A contract between borrower/lender Bankruptcy/reorganization threat if contract is violated Priority claim on assets, cash flow Less return potential than equity Little/no voice in management General Terms Associated with Debt: Public versus private debt issues Some forms of debt capital: Bonds Bank loans Commerical finance company loans General Terms Associated with Debt: Par | Chapter 10 Bonds and Stocks: Characteristics and Valuation © 2011 John Wiley and Sons Chapter Outcomes Identify the major sources of external long-term financing for corporations. Describe major characteristics of corporate bonds. Identify the reasons why investors seek stocks for an investment vehicle. Describe major characteristics of preferred stock and common stock. Describe the process for issuing dividends by a firm. Explain how financial securities are valued in general and specifically for bonds and stocks. What is a financial asset? A claim against the income or assets of an individual, business, or government. Examples: Shares of stock Home Mortgage Car Loan Long-term Financing Sources for Business New security issues 2008 2009 Corp Bonds 80.7% 93.8% Corp Stocks 19.3 6.2 Bonds Public 86.5% 82.8% Sold abroad 13.5% 17.2% Net Long-term Financing Sources for Business 2008 2009 Bonds 93.6% 69.0% Common Stock -41.2 -4.6 Internal Financing 47.6 35.6 As we .
