DQW2-1 - convertible debt and corporate bonds There are...

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1.    Why do companies make investments in other companies? What are the differences  between debt and equity investments? What would influence a company to choose equity or  debt as an investment?    Equity investments represent common stock, preferred stock, and similar ownership interests in  a company. Equity investments can be classified based on the percentage of the investee voting  stock; i.e. holdings of less than 20 percent, means the investor has a passive interest in the  company; holdings between 20 to 50 percent, means the investor has significant influence on  the company’s decision making; and holding of more than 50 percent signifies a controlling  interest in the company. Debt investments represents a creditor relationship, examples include government securities, 
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Unformatted text preview: convertible debt, and corporate bonds. There are three categories that debt securities are grouped into: held-to-maturity – a security that has positive intent and the ability to hold to maturity; trading – securities bought and held to be sold at a profit in the near term; and available-for-sale – securities not classified as held-to-maturity or trading securities. A company would be influenced to buy equity securities if it had a long-term use of the asset. Similarly, a company would opt for debt investments if they didn’t intend on holding on to the security in the not too distant future....
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This note was uploaded on 08/14/2011 for the course ACCT 423 taught by Professor R.becksted during the Spring '09 term at University of Phoenix.

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