1. Bonds MK, Unit 16

2. Sources of finance Internal Internally generated cashflows, e.g., retained profit External Equity financing Issuing shares Debt financing Loans (from banks, other sources) Issuing bonds

3. External sources of finance: equity financing share capital, dividends shareholders company

4. External sources of finance: equity financing share capital, dividends shareholders company Share capital dividends

5. External sources of finance: debt financing repayments and interests, loans, investment capital, principal and coupon bondholders company lenders

6. External sources of finance: debt financing bondholders investment capital principal and coupon company loans repayments and interests lenders

7. Stocks / shares MK, Unit 17

8. Recall from last semester What are incorporated / unincorporated companies? What is unlimited/limited liability? What are limited companies? What is the main difference between private and public limited companies? What is an IPO? Where are shares sold and bought?

9. MK, p. 87, Reading 1. Match up the sentences 2. Find definitions for the following terms: stocks or shares underwrite the stock issue nominal value market value stock index bull market bear market going public

10. Do some research! Share price index (pl. indices) (find examples!) E.g., S&P 500, FTSE, CROBEX Rate of return Ordinary shares Preferred shares

11. Match up the related terms. Decide if they are synonymous (=) or antonymous (↔) related (~) IPO equities nominal value bull market face value flotation bear market ordinary shares Initial Public Offering market value preferred shares

12. Match up the related terms. Decide if they are synonymous (=) or antonymous (↔) related (~) IPO equities nominal value bull market Initial Public Offering = flotation = preferred shares ~ ordinary shares ~ face value = market value ↔ bear market ↔

13. Primary or secondary market? The market in which investors or speculators have the first opportunity to buy a newly issued security. A market on which an investor or speculators purchases an asset from another investor rather than an issuing corporation.

14. Market trends

15. Bull or bear? 1. A rising market 2. A speculator who expects prices to rise and purchases a security or commodity in hopes of reselling it later for a profit. 3. A declining market 4. A speculator who expects prices to decline and sells a (borrowed) security or commodity in the hope of buying it back later at a lower price.

16. Bull or bear? 1. A rising market – a bull market 2. A speculator who expects prices to rise and purchase a security or commodity in hopes of reselling it later for a profit. - bulls 3. A declining market – a bear market 4. A speculator who expects prices to decline and sell a (borrowed) security or commodity in the hope of buying it back later at a lower price. – bears

17. Divide the words into 2 groups Markets can be … booming, bear, bull, depressed, falling, rising, strong, weak A booming, bull, rising, strong market A bear, depressed, falling, weak market

18. Bonds

19. Reading comprehension 1. Who are the different actors in issuing and selling bonds? 2. Why would somebody buy a bond? 3. What are the advantages of buying bonds over shares? 4. What are the disadvantages? 5. What are the advantages and disadvantages of debt financing for companies (selling bonds over selling shares)? Use the term “tax deductible”. 6. Where can bonds be bought? 7. What affects bond prices?

20. Government bonds 1. What are government bonds called? 2. Why do governments issue bonds? 3. What is another reason for issuing government bonds, not mentioned in the text?

21. Tasks MK, p. 82, Vocabulary 1 MK, p. 82, Comprehension

22. Vocabulary: Talkking about bond value Par = nominal or face value (100%) Above par Below par 100% 110% 60% The bond is sold at par. The bond is sold at above par. The bond is sold at below par.

23. MK, p. 82, Vocabulary 2 Borrow Deduct Finance Issue Pay Raise money interest payments tax activities shares bonds (a rate of) interest a (higher) return dividends tax money

24. MK, p. 82, Vocabulary 2 Receive Repay Sell interest payments dividends principal bonds money assets bonds

25. Bonds (Reading: MK, p. 84, Questions: p. 83) Question 1: a) UK government bonds, b) corporate bonds, c) high-yield bonds

26. Types of bonds Match up the terms that mean the same UK government bonds corporate bonds high-yield bonds non-investment grade bonds investment grade bonds gilts junk bonds

27. Solution: Types of bonds Match up the terms that mean the same UK government bonds corporate bonds high-yield bonds Why do junk bonds offer a high yield? Find a definition in the text. gilts investment grade bonds junk bonds non-investment grade bonds

28. Bonds (Reading: MK, p. 84, Questions: p. 83) Question 2: how do these sentences answer the question? UK government bonds soared [ … ] after the Bank of England unveiled plans to buy billions of pounds of assets [ … ]. With the economy speeding downwards, companies that were once thought ultra-safe are now being forced to offer higher returns to investors. [High-yield bonds have] started to grow in popularity, partly dues to the staggeringly high-yields they have offered since the world plunged into recession…

29. Bonds and shares compared Reader

30. Answer these questions Reader, p. 37 1. How can corporations finance their activities? (3) 2. What are the rights of a shareholder? 3. List the main differences between stocks and bonds. 4. What does “legally prior claim” mean? 5. List 3 types of risks that affect the value of bonds.

31. Finish the sentences 1. Bonds are liquid, i.e. 2. Bonds usually have a defined term, or maturity, after which... 3. If a company goes bankrupt, its bondholders will often 4. If a company goes bankrupt, the shareholders often they are easy to sell. the principal is repaid. receive some money back. lose all their investment.

32. Shares or bonds? Put these terms into two groups: Ownership share, value affected by changes in interest rates, legally prior claim upon profits, paid back, never paid back, dividend, influence on the running of the company, loan, coupon, more/ less risky investment, market value varies, liquid, maturity, outstanding indefinitely, value affected by inflation, tax shield

33. Shares Ownership share Dividend Influence on the running of the company More risky investment Market value varies Never paid back = Outstanding indefinitely Liquid Bonds Loan Coupon Legally prior claim upon profits Less risky investment Market value varies Paid back on maturity Liquid Value affected by inflation and changes in interest rates Tax shield

34. Practise: Write sentences with these terms: 1. Raise money, shares, bonds 2. Insurance companies, mutual funds, pension funds, institutional investors, bonds 3. Principal, maturity date 4. Coupon, regular, fixed 5. Bondholders, creditors, lend

35. Practise: Match up the synonyms Equity financing Debt financing Treasury bonds/notes Primary market Secondary market The principal The coupon Issuing bonds The original investment shares/ bonds sold by the issuer Issuing shares Shares/bonds sold by investors Gilt-edged stock/ gilts Interest payment on a bond

36. Solution Equity financing Debt financing Treasury bonds/notes Primary market Secondary market The principal The coupon issuing shares issuing bonds gilt-edged stock/ gilts shares/ bonds sold by the issuer shares/bonds sold by investors the original investment interest payment on a bond

37. HW p. 92 Match up the half-sentences