investments test 1 nots note swap

investments test 1 nots note swap - Finance 3826...

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Finance 3826 Investments Capital Markets – Long-Term – equity/stock market, riskier, long term bonds Money Market – Short-Term, liquid, high quality securities, T-Bills Enterprise Value – Amount of all claims for a company <Market Capitalization + BV Preferred Stock + BV Minority Interest + BV Debt – Cash> o Market Value of equity/Common stock – because that’s what you can sell for. o Book Value of debt – that’s what you owe. From asset side take Cash and Cash equivalent From liability side take Long term debt and current portion of LT debt but not leases or pensions. Equity – minority interest, preferred stock at book value in books, market value of common stock X shares. No acct pay or acct rec or CS or R/E. Looking for net debt. Market Capitalization – Total Shares x Price of stock In bankruptcy the Debt holders become the equity holders because the money owed to them. ABI + BOW Abitibibowater o This company works under two different stocks o ABI has almost all the debt while BOW has very little debt o Even if ABI goes under the value of Bowater will be okay and will not have to pay off any of ABI’s debt holders. Bowater may file ABI for bankruptcy while not declaring themselves. The bond holders of ABI may try and bring it to court about the separateness of the Company. Money Markets Treasury Bills are a guarantee to pay a specific amount in a specific amount of time. Less than 1 year. Treasury Notes and bonds are the same as T Bills but for longer terms.
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o Notes 1-10 yrs o Bonds >10 yrs On the Run Bonds – 2 yr, 4 yr, 5 yr, 10 yr, 30 yr Many securities are priced off of these Bonds yields Once the year changes the bond will change and many people will switch their security to the new On the Run Bonds. Off the Rune Bonds – everything else TIPS - Treasury Inflation Protected Securities. Help protect from increased inflation. Repo – Repurchase Agreement – Can try and generate extra income by Repo-ing bond (contractual agreement to sell the bond and have it sold back the next day) o Why not just repo instead of T Bills? There is counterparty risk in repo. If they declare bankruptcy then all you have is bonds, which may decrease in value. High Quality and Short term but there is Counterparty risk if the contract is broken. LIBOR – London Inter Bank Offered Rate – rate at which banks borrow money from each other. This is not guaranteed by the federal government so it has risk. o Some of biggest players are not regulated by the FED. o Why London? Under US law this could be considered a security. We would have to register this as a security thus having lots of paperwork to go through. In London this rule is not applied. o
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investments test 1 nots note swap - Finance 3826...

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