AFM121 Lecture Notes - Lecture 3: Reference Rate, Inverse Relation, Cash Flow
27 Dec 2015
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Equity has no obligation to pay out dividends. Debt holders are senior to equity holders in bankruptcy holders: basically, debt holders are paid back first over equity. If there"s nothing left, sucks for equity holders. Shareholders: e[r] on debt is lower than e[r] on equity (always) like don"t fuck up on this he seems to be very passionate about it no common sense on how financial markets could possibly work . Less risk cause you know you"ll be paid back before. Equity shareholders in the event of bankruptcy: bond is another area to use basic intuition [this is given you don"t know anything related to market value and such!] Bottom bracket: 0 (minimum anything is worth) Top bracket: . 00 (in the event that there is no inflation, no time value, no discounting) Think about what is reasonable: money is worth more now than in the future (because discounts and inflation) no way around it.
