Chapter 10. Bonds and Stocks: Characteristics and Valuations
Chapter Learning Objectives:
AFTER STUDYING THIS CHAPTER, YOU SHOULD BE ABLE TO:
Identify the major sources of external long-term financing for corporations.
Describe major characteristics of corporate bonds.
Identify the reasons why investors seek stocks for an investment vehicle.
Describe major characteristics of preferred stock and common stock.
Describe the process for issuing dividends by a firm.
Explain how financial securities are valued in general and specifically for bonds and stocks.
Where We Have Been. . .
The financial system is composed of a number of participants—banks, insurance companies, credit unions, and individuals, among others. Some borrow or lend funds; others seek to sell or purchase ownership rights, or common stock, in firms. We've seen how investors are willing to give up their money today in the expectation of receiving a return in the future that will exceed the inflation rate and that will reward them for the risk of their investment. Time-value-of-money principles (present value, future value) help both borrowers and lenders determine items such as how much to borrow, repayment schedules, and the return on an investment.
Where We Are Going. . .
Bonds and stocks are traded in securities markets, which will be the topic of Chapter 11. We tie together the concepts of expected return, risk, and valuation in Chapter 12 when we discuss financial risk and return concepts. Additional sources of funds for business ...
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