Which of the following is a source of long-term funds?

Long-Term Sources of Finance Long-term financing sources can be in the form of any of them: Share Capital or Equity Shares. Preference Capital or Preference Shares. Retained Earnings or Internal Accruals.

Which of the following is a source of short-term funds?

Short-term financing comes due within one year. The main sources of unsecured short-term financing are trade credit, bank loans, and commercial paper. Secured loans require a pledge of certain assets, such as accounts receivable or inventory, as security for the loan.

Which of the following represents the one rate of return that a firm must earn on its investments in order to provide all suppliers of capital with their required rate of return?

9-1. The cost of capital is the rate of return that the firm must earn on its investments in order to satisfy the required rates of return of all the firm’s sources of financing (including creditors who loan the firm money and owners who purchase shares of stock in the company).

Is the weighted average cost of funds over the long run?

The weighted average cost of capital (WACC) reflects the expected average future cost of funds over the long run. Since retained earnings is a more expensive source of financing than debt and preferred stock, the weighted average cost of capital will fall once retained earnings have been exhausted.

Is debt less risky than equity?

Debt investments tend to be less risky than equity investments but usually offer a lower but more consistent return. What is a debt investment? These types of investments are made in a firm or project through the purchase of a large quantity of debt, with the expectation of being paid back plus interest. They are less volatile than common stocks, with fewer highs and lows than the stock market. The bond and mortgage market historically experiences fewer price changes, for better or worse, than stocks.

Is debt better than equity?

The main benefit of equity financing is that funds need not be repaid. However, equity financing is not the “no-strings-attached” solution it may seem. Since equity financing is a greater risk to the investor than debt financing is to the lender, the cost of equity is often higher than the cost of debt.

How do you interpret cost of equity?

The cost of equity can be calculated by using the CAPM (Capital Asset Pricing Model) CAPM formula shows the return of a security is equal to the risk-free return plus a risk premium, based on the beta of that security or Dividend Capitalization Model (for companies that pay out dividends).

What is a good debt to equity ratio?

The optimal debt-to-equity ratio will tend to vary widely by industry, but the general consensus is that it should not be above a level of 2.0. While some very large companies in fixed asset-heavy industries (such as mining or manufacturing) may have ratios higher than 2, these are the exception rather than the rule.

Is Bond a debt or equity?

Examples of debt instruments include bonds (government or corporate) and mortgages. The equity market (often referred to as the stock market) is the market for trading equity instruments. Stocks are securities that are a claim on the earnings and assets of a corporation (Mishkin 1998).

Are Bonds equity?

Bonds are a loan from you to a company or government. There’s no equity involved, nor any shares to buy. Put simply, a company or government is in debt to you when you buy a bond, and it will pay you interest on the loan for a set period, after which it will pay back the full amount you bought the bond for.

Are bonds safe if the market crashes?

If a market crash is on the horizon, playing a little defense makes sense. Bonds are (supposedly) much safer than stocks.

What is difference between bond and equity?

If you choose to invest in a company, there are two routes available to you – equity (also known as stocks or shares) and debt (also known as bonds). Shares are issued by firms, priced daily and listed on a stock exchange. Bonds, meanwhile, are effectively loans where the investor is the creditor.

Are bonds a good investment now 2020?

Many bond investments have gained a significant amount of value so far in 2020, and that’s helped those with balanced portfolios with both stocks and bonds hold up better than they would’ve otherwise. Bonds have a reputation for safety, but they can still lose value.

What is the best bond fund to buy now?

Seven best bond index funds to buy:

Fidelity U.S. Bond Index Fund (FXNAX)
Nuveen ESG U.S. Aggregate Bond ETF (NUBD)
SPDR Portfolio Mortgage Backed Bond ETF (SPMB)
Vanguard Short-Term Investment-Grade Fund (VFSUX)
iShares Broad USD High Yield Corporate Bond ETF (USHY)
Vanguard Tax-Exempt Bond Index Fund (VTEAX)

Should you buy bonds when interest rates are high or low?

Despite the challenges, we believe investors should consider the following reasons to hold bonds today: They offer potential diversification benefits. Short-term rates are likely to stay lower for longer. Yields aren’t near zero across the board, but higher-yielding bonds come with higher risks.

What are the best bonds to buy in 2020?

The best bond ETFs to buy now:

iShares Core U.S. Aggregate Bond ETF (AGG)
Vanguard Total Bond Market ETF (BND)
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
Vanguard Intermediate-Term Corporate Bond ETF (VCIT)
Vanguard Short-Term Corporate Bond ETF (VCSH)
Vanguard Total International Bond ETF (BNDX)

What are the 5 types of bonds?

Following are the types of bonds:

Fixed Rate Bonds. In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond.
Floating Rate Bonds.
Zero Interest Rate Bonds.
Inflation Linked Bonds.
Perpetual Bonds.
Subordinated Bonds.
Bearer Bonds.
War Bonds.

What are the disadvantages of bonds?

The disadvantages of bonds include rising interest rates, market volatility and credit risk. Bond prices rise when rates fall and fall when rates rise. Your bond portfolio could suffer market price losses in a rising rate environment.

What is the current I bond rate?

What interest will I get if I buy an I bond now? The composite rate for I bonds issued from November 2020 through April 2021 is 1.68 percent. This rate applies for the first six months you own the bond.

What is the current rate for I and EE bonds?

November 2, 2020. Effective today, Series EE savings bonds issued November 2020 through April 2021 will earn an annual fixed rate of 0.10%. Series I savings bonds will earn a composite rate of 1.68%, a portion of which is indexed to inflation every six months.

Which is better Series EE or I bonds?

The Series EE savings bond has a fixed interest rate of return. The U.S. government commits that Series EE bonds will double its face value by the 20-year maturity. The Series I savings bond has no guarantee of value at maturity. Series I bonds carry a fixed rate plus an adjustable interest rate based on inflation.

Will savings bonds become worthless?

Series EE Bonds, the common variety first issued in 1980, and still being issued today, were designed to pay interest for up to 30 years. 1 2 So any bonds dated 1989 or earlier—the first generation, so to speak—will have stopped paying by the end of 2019.