ECON 1051 1nd Edition Lecture 22 Outline of Last Lecture I. Types of FirmsII. Public v. Private III. The Structure of Corporations and the Principal-Agent ProblemIV. How Firms Raise Funds (Using Internal Finance)Outline of Current Lecture I. How Firms Raise Funds (Using External Finance) II. BondsCurrent LectureI. How Firms Raise Funds (Using External Finance) a. It is the role of an economy’s financial system to transfer funds from savers to borrowers either directly or indirectlyi. Indirect Finance1. A flow of funds from savers to borrowers through financial intermediaries such as banks. Intermediaries raise funds from savers to lend to firms (and others)a. Intermediaries: banks, credit unions, mutual funds, pension funds, ii. Direct Finance 1. A flow of funds from savers to firms through financial markets, such as the New York Stock Exchange. a. Usually takes the form of borrowers selling lenders financial securities such as stocks and bondsi. Stocks – own a part of the company entitling you toprofit and assets ii. Bonds – a financial security that represents a promise to repay a fixed amount of funds II. Bonds a. The principal or face value of a bond is the final payment of the loam amount at maturity, or the end of its term i. Coupon payment – an interest payment on a bond These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.ii. Interest rate – the cost of borrowing funds, usually expressed as a percentage of the amount borrowed 1. A $1000 face value at 6% coupon rate bond that matures at 10 years coupon payments/interest payments are $60 every
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