Why would a company use a form of long-term debt to capitalize operations versus issuing equity?

July 7, 2024 No Comments

A: A firm that needs money for long-term, general business operations can raise capital through either equity or long-term debt. Whether a firm uses debt or equity to raise capital depends on the relative costs of capital, the firm’s current debt-to-equity ratio and its projected

Why would a corporation issue convertible bonds?

July 7, 2024 No Comments

A: A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion of its nominal value to either cash or a specified number of common shares of equal value. A corporation issues a convertible bond to

Yield vs Interest Rate

July 7, 2024 No Comments

A: The main difference between yields and interest rates is that each term refers to different financial instruments. Yield commonly refers to the dividend, interest or return the investor receives from a security like a stock or bond, and is usually reported as an annual

Why Do Commercial Bills Yield Higher Than T-Bills?

July 7, 2024 No Comments

A: Commercial bills are unsecured, short-term debt issued by a corporation, often times for the financing of short-term liabilities and inventory. Meanwhile, a Treasury bill (T-Bill) is short-term debt backed by the U.S. government with a maturity of under one year. Funds raised from selling T-Bills is intended to support

Why Do Companies Issue 100-Year Bonds?

July 7, 2024 No Comments

A: Although it is rare, companies and governments do issue bonds that exceed an average person’s life expectancy. For example, multi-billion dollar companies such as the Walt Disney Company (DIS) and Coca-Cola (KO) have issued 100-year bonds in the past. Many of these bonds and debentures

Why do interest rates have an inverse relationship with bond prices?

July 7, 2024 No Comments

A: At first glance, the inverse relationship between interest rates and bond prices seems somewhat illogical, but upon closer examination, it makes good sense. An easy way to grasp why bond prices move in the opposite direction as interest rates is to consider zero-coupon bonds,

Where can I buy government bonds?

July 7, 2024 No Comments

A: The type of bond determines where you can purchase it, so you need to decide which type of bond you would like to buy first. Bonds are debt obligations. Federal bonds are issued by the federal government, while municipal bonds are issued by state

Why do longer term CDs pay a higher rate than the short-term CDs?

July 7, 2024 No Comments

A: To address this question, let’s employ the concept of distance. In the city, a short taxi ride from your hotel to a convention center might cost about $5.00. However, when you depart from your hotel for a ride to the airport located outside the

Where can I find year-to-date (YTD) returns for benchmarks?

July 7, 2024 No Comments

A: Benchmarks are securities or groups of securities against which investment performance is analyzed. Examples of popular equity benchmarks are the S&P 500 index, Dow Jones Industrial Average, Russell 2000 index, Nasdaq Composite, MSCI World Index, FTSE100 and Nikkei 225. Bond indexes are usually created

Why is debt issued in both temporary and permanent forms?

July 7, 2024 No Comments

A: Debt is separated into two categories: 1) Temporary or short-term 2) Permanent or long-term. Temporary or short-term debt refers to debt with a maturity of less than one year. This means that the debt is due to be paid in less than one year.

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