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UA / Finance / FI 301 / What is the meaning of tax advantages?

What is the meaning of tax advantages?

What is the meaning of tax advantages?

Description

School: University of Alabama - Tuscaloosa
Department: Finance
Course: Introduction to Financial Institutions and Markets
Professor: Sherwood clements
Term: Spring 2016
Tags: FI 301, FI, finance, and Financial Institutions
Cost: 25
Name: FI 301 Week 7 Notes
Description: These notes cover part 2 of chapter 7 and chapter 10.
Uploaded: 03/04/2016
14 Pages 99 Views 3 Unlocks
Reviews


SISU


What is the meaning of tax advantages?



Study Soup

dy Sou

Yields offered on Municipal Bonds. municipal bonds have risk

more than federal, less than other it

Tax Advantages. * municipal bonds are FREE from taxes

4 want people to invest in I w so the govemment does not have to pay


What are the characteristics of corporate bonds?



Stucky se

ch.7

Shov

part 2 Corporate Bonds:

agency bonds - Fannie Mae and Freddie Mac

collatoral mortgage backed bonds

• corporate bond debt issued by businesses

y more default risk n a sunsecured = no collatoral 4 NOT tax free to investors


What are zero-coupon bonds?



* BUT tax deduction on interest paid Don't forget about the age old question of Does the theory about songbirds apply to human?

• minimum denomination - $ 1000 eur o typical maturity - 10 to 30 years in

Study Soup

3 Characteristics of corporate Bonds -

(a) sinking fund provision n e

must pay a percentage of debt.

I off each year olm (b) protective covenants :

assure that you will get your $$$ back Don't forget about the age old question of When should vegetables be harvested?

o ex reduce large bonuses o not issue new stock Don't forget about the age old question of What is the fifth of g?

o not take on more baok loans (c) call provisions a

reissue bonds (lower interest rates)

call premium

Study Soup

Strasoup

SENY SOUT

ASLON

added to

(d) bond collateral

y real estate of the company une

collateral everyone wants ann b (physical) always have value (e) zero coupon bond

S NO coupon payments Don't forget about the age old question of How do you find a tangent line?

sur buy at a discount Don't forget about the age old question of What are the four levels of protein structure?

a

n te variable rate bonds en son

y rate changes over time runs 8 I L(4) convertible bond a u 2

company has the opttion to issue. the stock to pay off bond holders at

apiis aut

Secondary Market for Corporate Bonds:

• bond mutual funds are typical investors

or pension funds to

• or insurance company long term investment

• liquid so much money is traded a day

L 3 x more than stocks

SO

1 Corporate Bond Listing o g Don't forget about the age old question of Who is the first president of the philippines?

• sold on OTC market anaona

Hinvestment brokers on boom alyson 2 Types of orders a

n

d (a) market order i

- pay at current market price a (b) limit order

po you set the price, if it hits it,

o then you buy it go 3 Trading Online

Study Soup

Studystup

3) Study Soup

Stud Soup

SOU

(3) St

ovoup

Study

shudy Soul

Junk Bonds:

• bonds with much higher risk of default e pay higher returns a n

pay 4-71. more risk premium than treasury

• lower rated bonds (issues).

BBB, CCC,

D

e n new companies issue junk bonds

have not proved themselves

a higher risk premium WEAK economy

more uncertainty

Studysce

this one

the board

How Corporate Bonds Finance Restructuring | Corporations use Bonds to finance a Leveraged Bond

• LBO - leverage buyouth

using debt to buyout a company - RJR Nabisco (most famous buyout. - KKR Kohlberg Kravis & Roberts I wanted LBO - Late 80's

- Barbarians at the Gate (movie) 2 Corporations use Bonds to Revise Cap. Structure

• capital structure - the way a company s

borrows money for its investments,

growth and operations

• DEBT is cheaper (bonds)

non equity rises in value

4 cost more to buy stock back

•debt - for- equity swap.

y give someone stock to replace their

debt to keep your cash

Study Soup

a) Study's up

) Study Soup

Study Soup

Stud Sup

Globalization of Bond Market:

Global Government Debt Markets

• other countries have debt markets was (3) Greek Debt Crisis chuo

• Greece cannot issue debt at same rate as u.s.

a Greece went broke a so spent more than they received in taxes * NOT all countries can borrow at the same rate

Others (NOT ON TEST)

Structured Notes

- bonds with a derivative

bex Orange County, CA

B 3 Exchange Traded Notesh

no

m e u nun are on

Chapter 10: Stock offerings and Investor Monitoring

Private Equity &

• buying into an investment that is not

publically traded (buy businesses)

• some business owners hope to go publice so that trying to get cash

a 4 reinvest into company (expand).

4 make a profit (cash out) a public offering is feasible if you can. provide a liquid market : 50mil shares e

Study Soup

Study Sou

Studysrup

e venture capital put money into start up

companies & technology

» 4-7 years

) Study Soup

Studs soup

Sour

St

1) StudySou

Studiup

Public Equity (Stocks).

primary market - company gets money > IPO secondary market-traded between investors * going public: 2 effects

- ownership structure..

Da few owners to hundreds of owners - capital structure we can Los a more stock vs. debt

hadding extra liability

Study Souto

Ownership and Voting Rights un n e common stockholders can vote an

once a year (mostly spring) * common stock votes

Board Members

he wrote 10-15 members

Z

•check financials

this on External Auditors

- the board 3 Bylaws from common stockholders -

• proxy - choose to vote with company

4 (check one box → done) into the

Preferred Stock: o much less traded less in

• paid dividends each quarter at & not every company pays common stock dividends.

• cannot vote

• not as volatile wont go up in value * common stock is more desirable (highest return) * preferred ALWAYS gets paid before common & common stock is more risky.

investor

Study Soup

Studysup

investor

company

Denon bonds are more risky * bonds are more desirable

(cheaper)

stua soup

invest in stocks

Study Sou

Participation in Stock Markets: de un

• stock prices changes

commercial en anticipated cash flows banks cannot 2) behavior one investor can change the stock price

efficient? → depends Lou byes for long term nicht

an I no for the short term mohol so we

• quarterly forecast

either jumps or goes down 3-40% sana favorable news story investors sell & WHY? h "profit taker" - take profit and get out

StudySoup

Initial Public Offerings (IPO) at isa

• company first goes public

• prospectus- how they make their money. I and what their risks are sound

filed with the SEC. offer price is determined by lead underwriter investment bank allocateds the IPO shares

• transaction costs- usually 7% of the funds raised

• lockup provision cannot sell your shares for

le months after the IPO and

preventing from price going down a

• initial public offerings tend to occur more

frequently during bullish stock markets.

20% on IPO day na **** • flipping shares-buying low - selling quick

I for a high return - price goes down to

StudySoup

@ Studyse

uick

Studsoup

Study Sour

andet

Abuses in the IPO Market

Spinning

Laddering 3 Excessive commission

Study

Long Term

• stock price goes down over time.

newer companies come in

Sarbanes-Oxley Act study have to provide much more information

Example in class: GOOGLE

* they dont always know what they are going

to get or what they want

• stock split- own stock split in have

& make it more liquid

Study Soup

Stock offerings and repurchases

1 Secondary Stock offerings na

issue shares a 2nd time

4 need cash (Regions Bank) decreases stock prices

• preemptive rights-commonstockholders ist right

Shelf Registration -SEC 2-3 years in advance 2 Stock Repurchases

o company buys own shares back

Dincrease stock prices

• investors view: depends. .. u

w good increase price y bad - Short sighted not looking in LR

4 could be making company bigger

Study Soup

a) Studoup

Study SOR

SISU

Study Soup

dy Sou

Yields offered on Municipal Bonds. municipal bonds have risk

more than federal, less than other it

Tax Advantages. * municipal bonds are FREE from taxes

4 want people to invest in I w so the govemment does not have to pay

Stucky se

ch.7

Shov

part 2 Corporate Bonds:

agency bonds - Fannie Mae and Freddie Mac

collatoral mortgage backed bonds

• corporate bond debt issued by businesses

y more default risk n a sunsecured = no collatoral 4 NOT tax free to investors

* BUT tax deduction on interest paid

• minimum denomination - $ 1000 eur o typical maturity - 10 to 30 years in

Study Soup

3 Characteristics of corporate Bonds -

(a) sinking fund provision n e

must pay a percentage of debt.

I off each year olm (b) protective covenants :

assure that you will get your $$$ back

o ex reduce large bonuses o not issue new stock

o not take on more baok loans (c) call provisions a

reissue bonds (lower interest rates)

call premium

Study Soup

Strasoup

SENY SOUT

ASLON

added to

(d) bond collateral

y real estate of the company une

collateral everyone wants ann b (physical) always have value (e) zero coupon bond

S NO coupon payments

sur buy at a discount

a

n te variable rate bonds en son

y rate changes over time runs 8 I L(4) convertible bond a u 2

company has the opttion to issue. the stock to pay off bond holders at

apiis aut

Secondary Market for Corporate Bonds:

• bond mutual funds are typical investors

or pension funds to

• or insurance company long term investment

• liquid so much money is traded a day

L 3 x more than stocks

SO

1 Corporate Bond Listing o g

• sold on OTC market anaona

Hinvestment brokers on boom alyson 2 Types of orders a

n

d (a) market order i

- pay at current market price a (b) limit order

po you set the price, if it hits it,

o then you buy it go 3 Trading Online

Study Soup

Studystup

3) Study Soup

Stud Soup

SOU

(3) St

ovoup

Study

shudy Soul

Junk Bonds:

• bonds with much higher risk of default e pay higher returns a n

pay 4-71. more risk premium than treasury

• lower rated bonds (issues).

BBB, CCC,

D

e n new companies issue junk bonds

have not proved themselves

a higher risk premium WEAK economy

more uncertainty

Studysce

this one

the board

How Corporate Bonds Finance Restructuring | Corporations use Bonds to finance a Leveraged Bond

• LBO - leverage buyouth

using debt to buyout a company - RJR Nabisco (most famous buyout. - KKR Kohlberg Kravis & Roberts I wanted LBO - Late 80's

- Barbarians at the Gate (movie) 2 Corporations use Bonds to Revise Cap. Structure

• capital structure - the way a company s

borrows money for its investments,

growth and operations

• DEBT is cheaper (bonds)

non equity rises in value

4 cost more to buy stock back

•debt - for- equity swap.

y give someone stock to replace their

debt to keep your cash

Study Soup

a) Study's up

) Study Soup

Study Soup

Study Soup

Stud Sup

Globalization of Bond Market:

Global Government Debt Markets

• other countries have debt markets was (3) Greek Debt Crisis chuo

• Greece cannot issue debt at same rate as u.s.

a Greece went broke a so spent more than they received in taxes * NOT all countries can borrow at the same rate

Others (NOT ON TEST)

Structured Notes

- bonds with a derivative

bex Orange County, CA

B 3 Exchange Traded Notesh

no

m e u nun are on

Chapter 10: Stock offerings and Investor Monitoring

Private Equity &

• buying into an investment that is not

publically traded (buy businesses)

• some business owners hope to go publice so that trying to get cash

a 4 reinvest into company (expand).

4 make a profit (cash out) a public offering is feasible if you can. provide a liquid market : 50mil shares e

Study Soup

Study Sou

Studysrup

e venture capital put money into start up

companies & technology

» 4-7 years

) Study Soup

Studs soup

Sour

St

1) StudySou

Studiup

Public Equity (Stocks).

primary market - company gets money > IPO secondary market-traded between investors * going public: 2 effects

- ownership structure..

Da few owners to hundreds of owners - capital structure we can Los a more stock vs. debt

hadding extra liability

Study Souto

Ownership and Voting Rights un n e common stockholders can vote an

once a year (mostly spring) * common stock votes

Board Members

he wrote 10-15 members

Z

•check financials

this on External Auditors

- the board 3 Bylaws from common stockholders -

• proxy - choose to vote with company

4 (check one box → done) into the

Preferred Stock: o much less traded less in

• paid dividends each quarter at & not every company pays common stock dividends.

• cannot vote

• not as volatile wont go up in value * common stock is more desirable (highest return) * preferred ALWAYS gets paid before common & common stock is more risky.

investor

Study Soup

Studysup

investor

company

Denon bonds are more risky * bonds are more desirable

(cheaper)

stua soup

invest in stocks

Study Sou

Participation in Stock Markets: de un

• stock prices changes

commercial en anticipated cash flows banks cannot 2) behavior one investor can change the stock price

efficient? → depends Lou byes for long term nicht

an I no for the short term mohol so we

• quarterly forecast

either jumps or goes down 3-40% sana favorable news story investors sell & WHY? h "profit taker" - take profit and get out

StudySoup

Initial Public Offerings (IPO) at isa

• company first goes public

• prospectus- how they make their money. I and what their risks are sound

filed with the SEC. offer price is determined by lead underwriter investment bank allocateds the IPO shares

• transaction costs- usually 7% of the funds raised

• lockup provision cannot sell your shares for

le months after the IPO and

preventing from price going down a

• initial public offerings tend to occur more

frequently during bullish stock markets.

20% on IPO day na **** • flipping shares-buying low - selling quick

I for a high return - price goes down to

StudySoup

@ Studyse

uick

Studsoup

Study Sour

andet

Abuses in the IPO Market

Spinning

Laddering 3 Excessive commission

Study

Long Term

• stock price goes down over time.

newer companies come in

Sarbanes-Oxley Act study have to provide much more information

Example in class: GOOGLE

* they dont always know what they are going

to get or what they want

• stock split- own stock split in have

& make it more liquid

Study Soup

Stock offerings and repurchases

1 Secondary Stock offerings na

issue shares a 2nd time

4 need cash (Regions Bank) decreases stock prices

• preemptive rights-commonstockholders ist right

Shelf Registration -SEC 2-3 years in advance 2 Stock Repurchases

o company buys own shares back

Dincrease stock prices

• investors view: depends. .. u

w good increase price y bad - Short sighted not looking in LR

4 could be making company bigger

Study Soup

a) Studoup

Study SOR

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