Chapter 2
Fundamentals
A first-time home buyer is typically not able to pay the price of the new home up front, but will have to borrow against future income using the house as collateral. A company which sees a profitable investment opportunity may not have sufficient funds to launch the project (buy new machines, hire employees) and will seek to raise capital by issuing stocks and/or borrowing money from a bank. The home buyer and the company are both in need of money to invest now and are confident that they will earn enough in the future to pay back loans that they might receive.
Conversely, a pension fund receives payments from members and promises to pay a certain pension once their members retire. Insurance companies receive premiums on ...
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