What are the risks of investing in a bond? As compared to other financial assets or securities fixed income securities are considered to be less risky. Though they are less risky, they are not entirely risk-free securities. Therefore, the investment in bonds is a function of various types and sources of risk. The actual return from a bond may differ from the expected return … [Read more...] about What are the risks of investing in a bond?
Finance
Derivatives Markets – The Development and Creative Application of Financial Techniques
Derivatives Markets - Financial engineering can be defined as the development and creative application of financial techniques for solving financial problems, exploiting investment opportunities, and to add value. Derivatives Markets Financial transactions and investment activities particularly insecurities as well as involve uncertainty. Fluctuations in the financial assets … [Read more...] about Derivatives Markets – The Development and Creative Application of Financial Techniques
Factors Determining Stock Price
Factors Determining Stock Price: Literature hypothesizes that the fluctuations in earnings are much more pronounced than the fluctuations in dividends. A downturn in earnings is not followed by a downturn in dividends unless the downturn in earnings persists for a long period. As result management knows that the market reacts negatively to dividend downturns, hence they are … [Read more...] about Factors Determining Stock Price
Bond Markets
Bond Markets. Understanding of fixed income securities. Fixed income securities are the investment alternatives generating predetermined fixed income to the investors. Bonds and debentures offer the investors the opportunity to earn stable nominal returns with low risk of loss of principal if held to maturity. Nevertheless, bonds also offer investors the chance to earn more … [Read more...] about Bond Markets
Valuation Purposes
Valuation Purposes Valuation Purposes. Photo Credit The purpose of the valuation may be summarized as under - For return on investment. The purchase of a business return on investment is an important consideration. Purchasing the controlling interest in a business. This serves the same purpose as the purchase of an active business. However, the part purchased should … [Read more...] about Valuation Purposes
Common Stock Valuation through Capitalization Technique
Common Stock Valuation through Capitalization Technique. A capitalization technique is merely a method of converting future cash returns into a single present or intrinsic value for security. Common stock offers the potential for growth of future cash flows, and this must be reflected in the intrinsic value analysis. Common Stock Valuation through Capitalization … [Read more...] about Common Stock Valuation through Capitalization Technique
Basic Valuation Model
Basic Valuation Model. The general principle of valuation also applies to share or stock valuation. The value of a share today is a function of the cash inflows expected by the investors and the risk associated with the cash inflows. The cash inflows expected from an equity share will consist of the dividend expected to be received by the owner while holding the share and the … [Read more...] about Basic Valuation Model
Bond Pricing Theorems
Bond Pricing Theorems. Being fixed income securities bonds are issued with a fixed rate of interest known as the coupon rate. The calculation of coupon rate is based on the face value and maturity of the bond. Bond Pricing Theorems At the time of issuance, the coupon rate seems to be equal to the prevailing market interest rate. Based on the market condition, the interest … [Read more...] about Bond Pricing Theorems
Factors Influencing Valuation Process
Factors Influencing Valuation Process. Generally speaking, the value of the firm should depend upon the expected return, measured in terms of net cash inflows generated by the firm’s assets and future returns. Factors Influencing Valuation Process Specifically, the following factors influence the value of a firm: The comparative position The first important factor … [Read more...] about Factors Influencing Valuation Process
Warrants vs Convertible Bonds – Meaning & Differences
Warrants vs Convertible Bonds Warrants Warrants are financial assets giving the holder the right but not obligation to buy shares of common stocks directly from the issuing authority at a fixed price for a given period of time. Each warrant specifies the number of shares of common stock a holder can purchase at the exercise price at the expiration date. Some features of … [Read more...] about Warrants vs Convertible Bonds – Meaning & Differences