For bonds with similar coupons, this differential sensitivity to changes in interest rates always holds true—the longer the maturity of the bond, the more its price changes in response to a given change in interest rates. Thus, even if the risk of default on two bonds is exactly the same, the one with the longer [...]
Every people want to have better life, own company, or have independent job but many of them including us hard to find a way to get out from this sticky condition. We have no other choice than work for certain company to earn money to support our daily needs. Sometimes we often get bored with [...]
Interest Rate Risk
As we saw in Chapter 1, interest rates go up and down over time, and an increase in interest rates leads to a decline in the value of outstanding bonds. This risk of a decline in bond values due to rising interest rates is called interest rate risk. To illustrate, suppose you [...]
Growth in dividends occurs primarily as a result of growth in earnings per share (EPS). Earnings growth, in turn, results from a number of factors, including (1) inflation, (2) the amount of earnings the company retains and reinvests, and (3) the rate of return the company earns on its equity (ROE). Regarding inflation, if output [...]
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Have you had experience being rejected when you applied for certain loan because your credit score is not enough? Well, do not feel like you are the most unfortunate person in the world because many people had the same experience as yours. Do not be surprise credit score is the determining factor for creditor to [...]
The starting point for the CAPM cost of equity estimate is rRF, the risk-free rate. There is really no such thing as a truly riskless asset in the U.S. economy. Treasury securities are essentially free of default risk, but nonindexed long-term T-bonds will suffer capital losses if interest rates rise, and a portfolio of short-term [...]
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The cost of capital is affected by a number of factors. Some are beyond the firm’s control,but others are influenced by its financing and investment policies.
Factors the Firm Cannot Control
Nowadays, with the rapid growth in industries and technology make people tend to be more consumptive. All those products spoil us and make us to do everything easier than before beside all those commercials always have a way to make us want to purchase the product. With consumptive society we live in and the easy [...]
