Econ Week 14: Fri 1.jpg - Return from srock = Aprice Dividend Rate clc 4A owner of the firm you have no guaranteed payment The price of the srock may go

Econ Week 14: Fri 1.jpg - Return from srock = Aprice...

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Unformatted text preview: " Return from srock = % Aprice + Dividend Rate ( clc) 4A owner of the firm, you have no guaranteed payment The price of the srock may go to zero the divident may re cult S You cannot lose more than the price of the stock (limited liability, . Bonds - A debt Instrument (I OU) issued by a firm . The Arms borrowing money and agrees to pay it back at a mixed Interest rare SExample - sloop 5-year bond, coupon rate = MO% - sloco = face value = par value - 5 years = maturity time - coupon rate - small payment every year - 0. 1 1 1000) price of bond = sico / (it ) + sico / ( in) + 100/1 1 ) . - when i goes up, the price of the bond goes down s You can sell the rond before it matures 4The price of the bond will go up or down depen ding on the current market interest rate "some default nik - - Bonds w/ high risk of default are called "junk bonds" y Bonds are issued by- - large corporations - Governments . small firms borrow from banks Federal , state, local (municipal , " munis ") , foreign 4 Bonds differ in terms of maturity - short - term - <7 year (bills, vs. govt-bills ) - Long-term - 7 year- Op . Uk issues " consols" - never mature . Longest us treasury is 30 years - other things equal, longer maturity us gov. bonds are more risky than shorter term us bonds . Not default risk , but interest rate nik . Bought bound wheni = 30%, sell when 1 = 5%% 130 buttered big loss-price bond will be lover...
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