Debt markets and interest rates
Allow governments, corporations, and individuals to borrow money
Borrowers issue a security called a bond offering interest & principal (par) over
Interest rate is the cost of borrowing (yield to maturity)
Goals of Firm and FCFF
Which of the following will is TRUE?
a. Taking on higher risk should earn higher return, so it is always is good to take on risky projects if one wants
to maximize firm value.
b. If one pays off debt, then FCFF will fall.
Chapter 13 Highlights
Common stock- owners of common stock are allowed to vote, receive dividends, and
hope that the stock of the company will rise. A share of common stock represents an
ownership interest in that firm. There are various classes of common
Investing is defined as the foregoing of consumption now in order to have the ability
to consume more at a later date. Time horizon and perspective, no guarantees.
Equities usually outperform other assets.
Real assets: used to produce goods and
Low risk=low returns
High risk=high returns
Risk: classic way of measuring risk is through volatility of returns. We can measure
risk by observing how much it fluctuates
The Sharpe ratio (reward to volatility)- ratio of portfolio risk premium to
Corruption in Guatemala
Country in Central America with a population
of 15.8 million
The most populous country in Central America
Has a constitutional democratic republic,
where Guatemalan citizens elect a preside