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Why does the investors required rate of return differ from the firms cost of capital?
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How does cost of debt differ from the required rate of return for bondholders?
Question 4 How does the cost of debt differ from the required rate of return for bondholders?
How does the cost of debt differ from the required rate of return for bondholders?
Question 4 How does the cost of debt differ from the required rate of return for bondholders?
What is the rate of return required by investors in the market for owning a bond called?
YTM
Explain why a characteristic of an efficient market is that investments in that market have zero NPVs?
On average, the only return that is earned is the required return-investors buy assets with returns in excess of the required return (positive NPV), bidding up the price and thus causing the return to fall to the required return (zero NPV); investors sell assets with returns less than the required return (negative NPV), driving the price lower and thus the causing the return to rise to the required return (zero NPV).
Relationship between required rate of return and coupon rate on the value of a bond?
required rate of return is the 'interest' that investors expect from an investment project. coupon rate is the interest that investors receive periodically as a reward from investing in a bond
Why do bond investors have lower required rates of return than do stock investors?
They take less risk, theoretically, so they have lower expectations.
What is the meaning of the term 'venture capital financing'?
The term venture capital financing refers to a group of investors that lend money to start up small businesses and firms. Investors do this in order to get more in return if the business or firm was successful.
Does the capital asset pricing model help us to get required rate of return or expected rate of return?
expected rate of return
When entrepreneurs look for venture capital they are looking for?
investors willing to risk money in a new company in return for the chance to get a lot of profit for their money
When entrepreneurs are looking for venture capital they are looking for?
investors willing to risk money in a new company in return for the chance to get a lot of profit for their money
What is the difference between discount rate and coupon rate?
For this answer we have to know the six categories of premioum:a. Inflation premium(more risk): high inflation means tha investors will require a higher return in order to invest at a certain project.b. Maturity premium: the longer the duration of a project, the higher the return that investors will require.c. Liquidity premium: the excess return that investors will require in order to invest their capital in a less desirable project on a secondary market.d. Exchange rate risk premium: the excess return that investors will require in order to invest their capital in a foreign financial assets that has volatile exchange rate.e. default risk premium: .... in order to invest in a more (??) project to default companyf. Real rate of interests
Why might investors demand a lower rate of return for an investment in Exxon Mobil as compared to United Airlines?
ExxonMobil has low financial risk, relatively high return, and a strong market position. They are more likely to raise debt capital at a significantly lower cost than United Airlines which is a financially troubled form. Investors are willing to accept low return for low risk.
