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Unformatted text preview: • “debt finance” • Three characteristics o A bond’s term The length of time until the bond matures The interest rate on a bond depends, in part, on its term Long term bonds are riskier that short term bonds o Credit risk The probability that the borrower will fail to pay some of the interest or principal o Tax treatment The way the tax laws treat the interest earned on the bond Government issue bonds (municipal bonds) and the bond owners are not required to pay federal income tax on the interest income The Stock Market • Stock: represents ownership in a firm and is, therefore, a claim to the profits that the firm makes • “equity finance” • Stocks offer the holder both higher risk and potentially higher return...
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This note was uploaded on 03/18/2009 for the course ECON 2020 taught by Professor Kaplan,jul during the Spring '08 term at Colorado.
- Spring '08