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Essay / Research Paper Abstract
This 5 page paper answers two questions asked by the student; 1. why interest rates on bank deposit accounts and yields on “junk bonds” are different, and 2. the meaning of and the significance of the price earnings ratio explaining what is likely to happen to a share and its' p/e ratio if there is a decline dividend payout and the earning outlook for the share deteriorates.
Page Count:
5 pages (~225 words per page)
File: TS14_TEjunkbo.rtf
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Unformatted sample text from the term paper:
rates quoted. However, this is not the case. If we consider each then the difference will become apparent, With a bank deposit
the bank plays the role of the intermediary. When we consider banks we think of these as the lender or offering an investment opportunity, but in reality they are
only an intermediary, as the money they hold is not their own. They are lending the money of their investors (savers) and charging a rate of interest so that some
is passed on to the saver and some retained as their fee for arranging the transaction. There are many reasons that this may happen and one of the largest incentives
of saver not lending money directly to the borrowers is due to the risk that would be involved and a mismatch between the two market places.
When a saver has a small amount of money saved it is unlikely that they would wish to lend it to single enterprise, there are greater
chances of default. The ability of the lender to be able to ascertain the risks and have the resources to make sense of these risks in order to ascertain the
required rate of interest may be seen as a good reason for the intervention of the bank, however it is the mismatch between the two markets that can be seen
as the greatest incentive of both parties to use the intermediary. This means that the money is given to a bank with the
expectation of a return, this is a direct investment and as such the money is given to the bank and the when the investment is cashed in the money
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