Bonds and Shares
4/29/2014
Discussion
Discussion
Why do companies issue shares?
In order to raise capital, generally to expand the business
Suggestion
• Raising capital
• Expanding the business
4/29/2014
1
Why do people buy the shares?
Shares give their holders part of the ownership of a company.
(Shareholders have a part of the ownership.)
Shareholders receive a proportion of a company’s profits as dividend, and may be able to make a capital gain by selling their shares at a higher price than they paid for them.
(Shareholders receive dividend and may be able to make a capital gain by selling their shares at higher price than they paid for them.)
4/29/2014
2
Discussion
Discussion
Why do most companies use a mixture of debt and equity financing?
Why do most companies use a mixture of debt and equity financing?
The advantage of borrowing money by issuing bonds is that interest payments, unlike dividends, are tax-deductible.
But interest has to be paid even in a year in which a company makes no profit, so it is safer to have equity capital as well, on which no dividends need be paid if there are no profits.
4/29/2014
3
4
• What are differences between bonds and shares?
Stocks and Bonds
Which security is better?
4/29/2014
4/29/2014
5
1
4/29/2014
STRUCTURE
BONDS
- a form of debt with which you are the lender instead of the borrower. - contractual loans made between investors and institutions that, in return for financing, will pay a premium for borrowing, known as a coupon.
- the bond's face value is returned to the investor at maturity.
- The guarantee of payback and all coupon payments relies solely on the ability of the borrower to generate enough cash flow to repay bondholders.
STRUCTURE
SHARES
- a form of ownership
- investors are given no promises about returns of the initial investment. - the profitability of the investment depends almost entirely upon
Discussion
Discussion
Why do companies issue shares?
In order to raise capital, generally to expand the business
Suggestion
• Raising capital
• Expanding the business
4/29/2014
1
Why do people buy the shares?
Shares give their holders part of the ownership of a company.
(Shareholders have a part of the ownership.)
Shareholders receive a proportion of a company’s profits as dividend, and may be able to make a capital gain by selling their shares at a higher price than they paid for them.
(Shareholders receive dividend and may be able to make a capital gain by selling their shares at higher price than they paid for them.)
4/29/2014
2
Discussion
Discussion
Why do most companies use a mixture of debt and equity financing?
Why do most companies use a mixture of debt and equity financing?
The advantage of borrowing money by issuing bonds is that interest payments, unlike dividends, are tax-deductible.
But interest has to be paid even in a year in which a company makes no profit, so it is safer to have equity capital as well, on which no dividends need be paid if there are no profits.
4/29/2014
3
4
• What are differences between bonds and shares?
Stocks and Bonds
Which security is better?
4/29/2014
4/29/2014
5
1
4/29/2014
STRUCTURE
BONDS
- a form of debt with which you are the lender instead of the borrower. - contractual loans made between investors and institutions that, in return for financing, will pay a premium for borrowing, known as a coupon.
- the bond's face value is returned to the investor at maturity.
- The guarantee of payback and all coupon payments relies solely on the ability of the borrower to generate enough cash flow to repay bondholders.
STRUCTURE
SHARES
- a form of ownership
- investors are given no promises about returns of the initial investment. - the profitability of the investment depends almost entirely upon