Chapter 1 the role and environment of managerial

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Unformatted text preview: loans. The Eurocurrency market has grown rapidly, primarily because it is an unregulated, wholesale, and global market that fills the needs of both borrowers and lenders. Investors with excess cash to lend are able to make large, short-term, and safe deposits at attractive interest rates. Likewise, borrowers are able to arrange large loans, quickly and confidentially, also at attractive interest rates. CHAPTER 1 The Role and Environment of Managerial Finance 25 The Capital Market capital market A market that enables suppliers and demanders of long-term funds to make transactions. The capital market is a market that enables suppliers and demanders of long-term funds to make transactions. Included are securities issues of business and government. The backbone of the capital market is formed by the various securities exchanges that provide a forum for bond and stock transactions. Key Securities Traded: Bonds and Stocks bond Long-term debt instrument used by business and government to raise large sums of money, generally from a diverse group of lenders. EXAMPLE preferred stock A special form of ownership having a fixed periodic dividend that must be paid prior to payment of any common stock dividends. The key capital market securities are bonds (long-term debt) and both common and preferred stock (equity, or ownership). Bonds are long-term debt instruments used by business and government to raise large sums of money, generally from a diverse group of lenders. Corporate bonds typically pay interest semiannually (every 6 months) at a stated coupon interest rate. They have an initial maturity of from 10 to 30 years, and a par, or face, value of $l,000 that must be repaid at maturity. Bonds are described in detail in Chapter 6. Lakeview Industries, a major microprocessor manufacturer, has issued a 9 percent coupon interest rate, 20-year bond with a $1,000 par value that pays interest semiannually. Investors who buy this bond receive the contractual right to $90 annual interest (9% coupon interest rate $1,000 par value) distributed as $45 at the end of each 6 months...
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