FIN300 Interest Rates and Taxes.pdf

FIN300 Interest Rates and Taxes.pdf - Interest Rates and...

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Interest Rates and Taxes Purpose of financial markets- Bring sources of capital and users of capital together Corporate financing trends: Bonds 75.5%- debt (interest expense deduction) Preferred stock 4.1%- equity Common stock 20.4%- equity Money market Short-term debt Commercial paper T-bills CDs Capital market Long-term securities Stocks Bonds Primary market New issues Investment banker “Underwriting”- purchase new shares Distribution (selling) new shares Advisement capacity Secondary market Reselling of existing security 2 types of selling expenses (flotation costs) 1.) Underwriter’s spread: gross price - net proceeds 2.) Issuance costs a.) Common stock (most expensive), preferred stock, bonds (least expensive)
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