Corporate Finance

Question 1

What are debt claims?

Answer 1

Debt claims: (ex. bank loans, bonds)
- Receive a fixed compensation for providing financing for a company
- Have priority over equity (get paid first)

Question 2

What is equity?

Answer 2

Part of the firm value that belongs to the owners.

Question 3

What is a bond?

Answer 3

„a security that obligates the issuer to make specified payments to the bondholder.“

Question 4

What is current (coupon) yield?

Answer 4

annual coupon payment / bond price

• Is supposed to be an indicator of your return, but not a very good one
• Ignores prospective changes in the bond price (bond price is bound to equal face value at maturity) and thus only tells half the story
• The return you earn over the next period if the price of the bond is constant