How do hurdle rate MARR and internal rate of return IRR relate?

July 7, 2024 No Comments

A: In capital budgeting, projects are often evaluated by comparing the internal rate of return (IRR) on a project to the hurdle rate, or minimum acceptable rate of return (MARR). Under this approach, if the IRR is equal to or greater than the hurdle rate, the

Do Preferred Shares Offer Companies a Tax Advantage?

July 7, 2024 No Comments

A: A preferred stock is a class of ownership in a corporation that provides a higher claim on its assets and earnings as compared to common stock. There is no direct tax advantage to the issuing of preferred shares when compared to other forms of financing such

How Are Bonds Rated?

July 7, 2024 No Comments

A: A bond rating is a grade given to a bond by various rating services that indicates its credit quality. It takes into consideration a bond issuer’s financial strength or its ability to pay a bond’s principal and interest in a timely fashion. Moody’s, Standard and

A corporate bond I own has just been called by the issuer. How can a company legally take away my bond? How do these call provisions work?

July 7, 2024 No Comments

A: Bond issues can contain what is referred to as a call provision, which is a right afforded to the issuing company enabling it to refund the bondholder the par value of his/her bond (perhaps including a small call premium) at the company’s discretion. Any

How Are Convertible and Reverse Convertible Bonds Different?

July 7, 2024 No Comments

A: Convertible bonds give bondholders the right to convert their bonds into another form of debt or equity at a later date, at a predetermined price and for a set number of shares. Meanwhile, reverse convertible bonds give the issuer the right, but not the obligation,

Are Bid Prices of T-Bills Higher Than the Ask?

July 7, 2024 No Comments

A: Typically, the ask price of a security should be higher than the bid price. This can be attributed to the expected behavior that an investor will not sell a security (asking price) for lower than the price they are willing to pay for it (bidding price). How Bid/Ask

How Are Day-Count Conventions Used in Bond Markets?

July 7, 2024 No Comments

A: A day-count convention is a system used in the bond markets to determine the number of days between two coupon dates. This system is important to traders of various bonds because it affects how the accrued interest and present value of future coupons is

Are high-yield bonds better investments than low-yield bonds?

July 7, 2024 No Comments

A: Most bonds typically make periodic payments, known as coupon payments, to the bondholder. A bond’s indenture, revealed when the purchaser buys the bond, will specify the the details of the coupon payments. Different companies will issue different bonds to raise financial capital, and the

Are money market accounts considered checking or savings?

July 7, 2024 No Comments

A: A: A money market account (MMA) is neither a checking account nor a savings account, though it does contain elements of both. Like a checking account, an MMA offers check-writing privileges, though they are limited to around three per month. Some MMAs also offer

Are U.S. banks authorized to issue bank guarantees or medium term notes (MTNs)?

July 7, 2024 No Comments

A: Bank guarantees and medium term notes (MTNs) are different types of instruments that serve different purposes for corporations. Bank guarantees are instruments issued by a bank or other lending institutions ensuring that the money owed by a debtor will be paid. In other words,

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