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Essay / Research Paper Abstract
This 3 page paper explains the major characteristics of bonds and common stock, their valuation formulas and their relative advantages and disadvantages from the shareholders perspective. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEbondshare.rtf
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Unformatted sample text from the term paper:
will be common stock and bonds. Bonds are a method of borrowing money from investors with the guarantee of a set level of return. The money is borrowed
and as this is going to the market it is often possible to borrow money in this way at a lower cot than going to a bank or finance house.
The bonds will usually have a set term, usually between five and ten years, but it may also be written into the bond that the company can redeem these earlier
if it chooses. The rate of interest may be a fixed rate, or it may be variable such as x amount above the base rate. Investors tend to prefer the
fixed level of interest. When the bond is sold there will be a face value. The company issuing the bind will then pay the interest due on the sates
due, usually twice a year, and then at the end of the term redeem the bond at the face value. It is also worth noting it is not only companies
that issue bonds, these are also a tool used by government. However, often, when these are issues by governments there will be bond auctions and the buyers will bid on
the bonds so the price gained may not be the face value. The bids will be based on how the bidders believe interest rates will move As interest rates
move the relative value of the bond will move, for example, if interests rates go up then the value of the bond is sold may fall as it has a
relatively low return, the opposite is also true. There is a equation used to calculate the present value of a bond. ( Fabozzi, 1994) Here N is the number
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