ADMS 3595 Chapter Notes - Chapter 14: Debt Settlement, Accrued Interest, Private Placement
17 Jan 2018
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Institutional investors invest heavily in investment grade securities (high quality securities: defeasance, set aside sufficient funds so that investment & return will be enough to pay principal & interest directly to creditor. Issuing shares: result in dilution of ownership. Internally generated funds: only efficient if company is producing excess funds, certain industries have greater borrowing power, capital intensive industries (hotel/transportation) Information for decision making: must make sure enough funds are available to continue to operate while maximizing return, amount of long-term debt is an important ratio, must have adequate amount; too little = not enough return / too. In result financial ratios are closely observed for decision making much = too risky. Measurement: bonds & notes issued at par, bonds issued at face value no interest accrued & no premium/discount, ex. P. 870: discounts & premiums, bond selling price determined by supply & demand / risk / market conditions / state of economy.
