Lecture 2: Flashcards
(23 cards)
Why do companies raise capital?
- To grow
- To pay off debts
- To merge and acquire
How do companies raise capital?
- Angel Finance: Someone who invests money into a business in exchange for equity
- Non-securities debt: Loans
- Venture Capital: Capital invested in a project where there is substantial risk
- Listing on the stock market: The process of listing on the stock exchange is called IPO (Initial Public Offering)
Companies sell shares to investors through IPOS
What methods can a company use to conduct an IPO on the LSE?
- Offer for sale
- Placing
- Offer for subscription
- Intermediaries offer
- Introduction
What are bonds?
Also known as stocks, gilts or debentures
In the government, local authorities and companies sector
What is the face value of a bond?
FV = almost always £100 and is the amount of money initially borrowed from the bond which then needs to be returned
What is the coupon rate of a bond?
CR = Interest earned on a Bond
What is a Bond’s maturity?
Maturity is the date the issuer repays the bond’s face value
What is a bond’s yield?
The return on the Bond Investment that you make after keeping a bond until maturity
What is market interest rate?
The interest on other bonds with similar characteristics
What does it mean when a market interest rate = bond coupon rate?
The bond’s price is on par
What does it mean when the market interest rate > coupon rate?
The bond is below par
What does it mean when the market interest rate < coupon rate?
The bond is above par
What is volatility in bonds?
Measures the percentage change in bond price for a small change in interest rates
What types of bonds are most impacted by changes in interest rates (more volatile)
Bonds with lower coupon rates and longer maturities
What is a short-term gilt?
Maturity is less than 5 years
What is a medium-term gilt?
Maturity is in 5-15 years
What is long term gilt?
Maturity is more than 15 years
What does the Financial Times report?
They report data on high yield emerging market bonds and global investment grade bonds however coverage is restricted
What is dividend discount models?
Discount expected future dividends at the rate return investors require
What does P0 mean?
An estimate of the current price or value of the share, also called the intrinsic value of the share
What does dt mean?
The dividend per share expected in year t
What does r mean?
The return that investors require, assumed constant
What is supernormal dividend growth?
When dividends grow at a very high rate for a short period, followed by a lower (normal) rate thereafter
