The Stock Market Flashcards
1
Q
How do firms raise needed funds?
A
Through debt and equity
2
Q
How can firms raise funds through debt?§
A
- Issuing bonds
- Bank loans
3
Q
How do firms raise funds through equity?
A
- Selling ownership shares (stock) in the firm
4
Q
How do stocks differ from corporate bonds?
A
They have no predetermined payments
5
Q
Compare the returns of a bond and a stock?
A
If financial investors only care about expected returns, in equilibrium both strategies must provide the same exp. return
6
Q
How do expectations affect asset prices?
A
- Only new information that changes expectations can affect asset prices
- The more unexpected an economic event, the greater its effect on asset prices
- Beliefs about the future have massive impact on the present
