bonds mk, unit 16. sources of finance internal internally generated cashflows, e.g., retained profit...
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Bonds
MK, Unit 16
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Sources of finance
Internal
Internally generated cashflows, e.g., retained profit
External
Equity financing Issuing shares
Debt financing Loans (from banks,
other sources) Issuing bonds
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External sources of finance: equity financing
share capital, dividends shareholders
company
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External sources of finance: equity financing
share capital, dividends shareholders
company
Share capital dividends
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External sources of finance: debt financing
repayments and interests, loans, investment capital, principal and coupon
bondholders
company
lenders
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External sources of finance: debt financing
bondholders
investment capital principal and coupon
company
loans repayments and interests
lenders
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Stocks / shares
MK, Unit 17
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Recall from last semester
What are incorporated / unincorporated companies?
What is unlimited/limited liability? What are limited companies? What is the main difference between private and
public limited companies? What is an IPO? Where are shares sold and bought?
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MK, p. 87, Reading
1. Match up the sentences
2. Find definitions for the following terms: stocks or shares underwrite the stock issue nominal value market value stock index bull market bear market going public
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Do some research!
Share price index (pl. indices) (find examples!) E.g., S&P 500, FTSE, CROBEX
Rate of return Ordinary shares Preferred shares
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Match up the related terms. Decide if they are synonymous (=) or antonymous (↔) related (~) IPO equities nominal value bull market
face value flotation bear market ordinary shares Initial Public Offering market value preferred shares
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Match up the related terms. Decide if they are synonymous (=) or antonymous (↔) related (~)
IPO
equities
nominal value
bull market
Initial Public Offering = flotation = preferred shares ~ ordinary shares ~ face value = market value ↔ bear market ↔
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Primary or secondary market?
The market in which investors or speculators have the first opportunity to buy a newly issued security.
A market on which an investor or speculators purchases an asset from another investor rather than an issuing corporation.
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Market trends
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Bull or bear?
1. A rising market 2. A speculator 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. A speculator who expects prices to decline
and sells a (borrowed) security or commodity in the hope of buying it back later at a lower price.
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Bull or bear?
1. A rising market – a bull market2. A speculator who expects 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 market4. A speculator who expects prices to decline
and sell a (borrowed) security or commodity in the hope of buying it back later at a lower price. – bears
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Divide the words into 2 groups
Markets can be … booming, bear, bull, depressed, falling, rising,
strong, weak
A booming, bull, rising, strong market A bear, depressed, falling, weak market
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Bonds
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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”.
6. Where can bonds be bought?7. What affects bond prices?
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Government bonds
1. What are government bonds called?
2. Why do governments issue bonds?
3. What is another reason for issuing government bonds, not mentioned in the text?
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Tasks
MK, p. 82, Vocabulary 1 MK, p. 82, Comprehension
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Vocabulary: Talkking about bond value
Par = nominal or face value (100%) Above par Below par
100% 110% 60%
The bond is sold at par. The bond is sold at above par. The bond is sold at below par.
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MK, p. 82, Vocabulary 2
Borrow Deduct Deduct Finance Issue Issue Pay Pay Pay Pay Raise
money interest payments tax activities shares bonds (a rate of) interest a (higher) return dividends tax money
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MK, p. 82, Vocabulary 2
Receive Receive Repay Repay Repay Sell Sell
interest payments dividends principal bonds money assets bonds
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Bonds (Reading: MK, p. 84, Questions: p. 83)
Question 1:
a) UK government bonds,
b) corporate bonds, c) high-yield bonds
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Types of bondsMatch up the terms that mean the same
UK government bonds
corporate bonds
high-yield bonds
non-investment grade bonds
investment grade bonds
gilts
junk bonds
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Solution: Types of bondsMatch up the terms that mean the same
UK government bonds
corporate bonds
high-yield bonds
Why do junk bonds offer a high yield?
Find a definition in the text.
gilts
investment grade bonds
junk bonds
non-investment grade bonds
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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…
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Bonds and shares compared
Reader
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Answer these questionsReader, p. 37
1. How can corporations finance their activities? (3)
2. What are the rights of a shareholder?
3. List the main differences between stocks and bonds.
4. What does “legally prior claim” mean?
5. List 3 types of risks that affect the value of bonds.
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Finish the sentences
1. Bonds are liquid, i.e.
2. Bonds usually have a defined term, or maturity, after which ...
3. If a company goes bankrupt, its bondholders will often
4. If a company goes bankrupt, the shareholders often
they are easy to sell.
the principal is repaid.
receive some money back.
lose all their investment.
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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 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
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Practise: Write sentences with these terms:
1. Raise money, shares, bonds
2. Insurance companies, mutual funds, pension funds, institutional investors, bonds
3. Principal, maturity date
4. Coupon, regular, fixed
5. Bondholders, creditors, lend
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Practise: Match up the synonyms
Equity financing Debt financing Treasury bonds/notes Primary market Secondary market The principal The coupon
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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Solution
Equity financing Debt financing Treasury bonds/notes Primary market
Secondary market
The principal The coupon
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
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HW
p. 92 Match up the half-sentences