Financial Instruments-debt(3 pages)
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- Lecture number:
- Lecture Note
- University of Texas at Austin
- Fin 320f - Foundations of Finance
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Lecture 2 Outline Raising cash Financial instruments Debt Loans and bonds Coupon rates Investors Bankruptcy Current Lecture Imagine you need $25,000 this week How will you get the money? Your options: • Borrow the money: get a cash advance on a credit card, get a loan from a bank or family… • Sell something you own: sell your car, bike or electronics via E-bay or Craigslist? When companies need extra cash, they have the same two options: • Borrow the money, or • Sell something they own, above and beyond their regular product or service; that is, sell part of the company The first option is called issuing debt; the second, issuing equity Financial instruments (aka securities) are debts and equities that: • Companies “issue” to obtain immediate cash inflows, and • Investors buy in the hope of obtaining future cash inflows Debt instruments: Bonds, Loans, Treasury bills, Commercial paper, etc. Equity instruments: Common stock, preferred stock Government debt: • Federal debt: considered to be default-free Treasury bills: short-term Treasury notes and treasury bonds: long-term • Municipal debt: issued by states and cities for Revenue-generating projects, or General obligations to the citizenry Corporate debt: • Corporate bonds, Commercial paper, term loans, etc. The small way: • Obtain a loan from a bank • Considered a private placement of debt The big way: FIN 320F 1st Edition
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