Financial Instruments-debt

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Financial Instruments-debt


Lecture number:
2
Pages:
3
Type:
Lecture Note
School:
University of Texas at Austin
Course:
Fin 320f - Foundations of Finance
Edition:
1

Unformatted text preview:

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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