Bonds

Bonds
MK, Unit 16
Sources of finance
Internal
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Internally generated
cashflows, e.g.,
retained profit
External
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Equity financing
 Issuing shares
Debt financing
 Bank loans
 Issuing bonds
External sources of finance: equity financing
share capital, dividends
shareholders
company
External sources of finance: equity financing
share capital, dividends
shareholders
Share capital
dividends
company
External sources of finance: debt financing
repayments and interests, loans, investment
capital, principal and coupon
bondholders
company
lenders
External sources of finance: debt financing
bondholders
investment capital
principal and coupon
company
loans
repayments and interests
lenders
Reading comprehension
1.
Who are the different actors in issuing and
selling bonds?
2.
Why would somebody buy a bond?
3.
What are the advantages of buying bonds over
shares?
4.
What are the disadvantages?
5.
What are the advantages and disadvantages of
debt financing for companies (selling bonds over
selling shares)? Use the term “tax deductible”.
Government bonds
1.
2.
3.
4.
5.
What are government bonds called?
Why do governments issue bonds?
What is another reason for issuing government
bonds, not mentioned in the text?
Where can bonds be bought?
What affects bond prices?
Bond value
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Par = nominal or face value (100%)
Above par?
Below par?
The bond is sold at par.
The bond is sold at above par.
The bond is sold at below par.
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100%
110%
60%
Match up the synonyms
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Equity financing
Debt financing
Treasury bonds/notes
Primary market
Secondary market
The principal
The coupon
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Issuing bonds
The original investment
shares/ bonds sold by the
issuer
Issuing shares
Shares/bonds sold by
investors
Gilt-edged stock/ gilts
Interest payment on a
bond
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Equity financing
Debt financing
Treasury bonds/notes
Primary market
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Secondary market
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The principal
The coupon
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issuing shares
issuing bonds
gilt-edged stock/ gilts
shares/ bonds sold by the
issuer
shares/bonds sold by
investors
the original investment
interest payment on a bond
Tasks
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MK, p. 82, Comprehension
MK, p. 82, Vocabulary 1
MK, p. 82, Vocabulary 2
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Borrow
Deduct
Deduct
Finance
Issue
Issue
Pay
Pay
Pay
Pay
Raise
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money
interest payments
tax
activities
shares
bonds
(a rate of) interest
a (higher) return
dividends
tax
money
MK, p. 82, Vocabulary 2
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Receive
Receive
Repay
Repay
Repay
Sell
Sell
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interest payments
dividends
principal
bonds
money
assets
bonds
Bonds (Reading: MK, p. 84,
Questions: p. 83)
Question 1:
a) UK gov. bonds, b) investment grade b.s,
c) non-investment grade b.s
Find terms that mean the same as the above in the
readings.
a) gilts, b) corporate bonds, c) high-yield bonds
Bonds (Reading: MK, p. 84, Questions: p. 83)
Question 2: how do these sentences answer the
question?
 UK government bonds soared [ … ] after the Bank of
England unveiled plans to buy billions of pounds of
assets [ … ].
 With the economy speeding downwards, companies
that were once thought ultra-safe are now being
forced to offer higher returns to investors.
 [High-yield bonds have] started to grow in popularity,
partly dues to the staggeringly high-yields they have
offered since the world plunged into recession…
Stocks / shares
MK, Unit 17
Recall from last semester
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What are incorporated / unincorporated
companies?
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What is unlimited/limited liability?
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What are limited companies?
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What is the main difference between private and
public limited companies?
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What is an IPO?
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Where are shares sold and bought?
MK, p. 87, Reading
1.
2.
Match up the sentences
Find definitions for the following terms:
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stocks or shares
underwrite the stock issue
nominal value
market value
stock index
bull market
bear market
going public
Do some research!
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Share price index (pl. indices)
Rate of return
Ordinary shares
Preferred shares
Stock exchange OR share price index?
New York Stock Exchange
2. Standard and Poor's index of
2.
500 companies
3. Dow Jones industrial average
3. DJIA
4. A global electronic
4. Nasdaq
marketplace for buying and
selling shares
5. Nasdaq Composite
5. London Stock Exchange
6. LSE
6. “footsie”
7. FTSE
7. Tokyo Stock Exchange
8. TSE
8. Share price index on TSE
9. Nikkei
9. Zagreb Stock Exchange
10. ZSE
10. Share price index on ZSE
11. CROBEX
1.
NYSE
S&P 500
1.
Match up the related terms. Decide if they
are synonymous (=) or antonymous (↔)
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IPO
equities
nominal value
bull market
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face value
flotation
bear market
ordinary shares
Initial Public Offering
market value
preferred shares
Match up the related terms. Decide if they
are synonymous (=) or antonymous (↔)
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IPO
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equities
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nominal value
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bull market
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Initial Public Offering =
flotation =
preferred shares =
ordinary shares =
face value =
market value ↔
bear market ↔
Primary or secondary market?
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The market in which investors have the first
opportunity to buy a newly issued security.
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A market on which an investor purchases an
asset from another investor rather than an
issuing corporation.
Market trends
Bull or bear?
1. A rising market
2. An investor who expects prices to rise and
purchases a security or commodity in hopes of
reselling it later for a profit.
3. A declining market
4. An investor who expects prices to decline and
sells a (borrowed) security or commodity in the
hope of buying it back later at a lower price.
Bull or bear?
1. A rising market – a bull market
2. Investor who expect prices to rise and
purchase a security or commodity in hopes of
reselling it later for a profit. - bulls
3. A declining market – a bear market
4. Investors who expect prices to decline and sell
a (borrowed) security or commodity in the
hope of buying it back later at a lower price. –
bears
Divide the words into 2 groups
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Markets can be …
booming, bear, bull, depressed, falling, rising,
strong, weak
A booming, bull, rising, strong market
A bear, depressed, falling, weak market
Bonds and shares compared
Reader
Answer these questions
Reader, p. 77-78
1.
2.
3.
4.
5.
How can corporations finance their activities?
(3)
What are the rights of a shareholder?
List the main differences between stocks and
bonds.
What does “legally prior claim” mean?
List 3 types of risks that affect the value of
bonds.
Finish the sentences
1.
Bonds are liquid, i.e.
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2.
Bonds usually have a
defined term, or maturity,
after which ...
If a company goes
bankrupt, its bondholders
will often
If a company goes
bankrupt, the
shareholders often
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3.
4.
they are easy to
sell.
the principal is
repaid.
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receive some
money back.
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lose all their
investment.
Shares or bonds?
Put these terms into two groups:
Ownership share, value affected by changes in
interest rates, legally prior claim upon profits,
paid back, never paid back, dividend,
influence on the running of the company,
loan, coupon, more/ less risky investment,
market value varies, liquid, maturity,
outstanding indefinitely, value affected by
inflation, tax shield
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Shares
Ownership share
Dividend
Influence on the
running of the company
More risky investment
Market value varies
Never paid back =
Outstanding indefinitely
Liquid
Bonds
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Loan
Coupon
Legally prior claim upon
profits
Less risky investment
Market value varies
Paid back on maturity
Liquid
Value affected by
inflation and changes in
interest rates
Tax shield
Write sentences with these terms:
1.
2.
3.
4.
5.
Raise money, shares, bonds
Insurance companies, mutual funds,
pension funds, institutional investors, bonds
Principal, maturity date
Coupon, regular, fixed
Bondholders, creditors, lend
HW
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Helga’s bar text and exercises