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32 Cards in this Set

  • Front
  • Back

What are six different examples of financial intermediaries

1. Deposit taking loan making institutions;


2. investment dealers;


3. mutual funds;


4. pension funds;


5life insurance companies; bank of Canada

Two types of long-term debt

Bank supplied debt- Term loan for example: mortgage



And



Long-term debt raised in the capital market by both governments and corporations

What’s the difference between a blonde and a debenture

Bond-long-term debt security that has a specific asset or asset pledged as collateral. Mortgage would be a bond with the house as collateral



A debenture is an unsecured loan

Coupon rate

Interest rate of long-term debt

Trust indenture

This is the legal document that details the contractor will relationship between the bar around lander also known as deed



It specifies a trustee who access third-party on behalf of the purchaser and dad holder and is obligated to ensure the deed is followed between both parties

Trust indenture

This is the legal document that details the contractor will relationship between the bar around lander also known as deed



It specifies a trustee who access third-party on behalf of the purchaser and dad holder and is obligated to ensure the deed is followed between both parties

Restrictive covenants


6 examples

Contractual clauses that place operating and financial constraints on the borrower



1. Require the bar were to maintain minimum ratio positions particularly liquidity leverage and profitability



2. Prohibit borrowers from selling accounts receivable to generate cash



3. Impose restrictions on the purchase and sale of fixed assets by the borrower



4. Constrain subsequent borrowing-subordination means that the subsequent creditors agreed to wait until all claims of the senior debt are satisfied



5. Limit the firms annual cash dividend payments to a specific percentage or an amount or restrict payment if the firm does not meet a certain profit level



6. Protect against a reduction in value of collateral pledged against that debt issue. For example a house that is insured against **** prices or flooding?



Call feature

Provision that gives the issuer the opportunity to re-purchase bonds prior to maturity


Sinking fund reservation

This is where a corporation will set aside a sinking fund to a trustee who will buy back their bonds in order to alleviate debt.



If interest rates go down and bond prices go up they are still able to re-purchase at par value

Preemptive right


Dilution of ownership

Allows come and shareholders to maintain the same percentage of the vote and protect against dilution of ownership if there are new shares issued



Dilution of ownership results in the dilution earnings spread out with more shareholders

Firm ground’s rights to shareholders which gives them the ability to purchase more shares the stated price below market in direct proportion to their number of on shares.

Firm ground’s rights to shareholders which gives them the ability to purchase more shares the stated price below market in direct proportion to their number of on shares.

Class a and class B common shares

Superior versus subordinate voting common shares



Difficult ration going public dirigible owners don’t really want to give up power so they might issue class a or class B shares. Each of the shares has a different ratio of voting power page 269 details bombardier founding family which only puts up 5% financing financing but controlling 63% of votes


Preferred shares

Preferred shares as a form of corporate financing whereby the shareholder has no interest in ownership of the company and is not obligated to take on debt, this form of equity is very similar to a bond



They are also preferred in the sense that they are paid dividends first and receive payment first upon liquidation

Preferred shares

Preferred shares as a form of corporate financing whereby the shareholder has no interest in ownership of the company and is not obligated to take on debt, this form of equity is very similar to a bond



They are also preferred in the sense that they are paid dividends first and receive payment first upon liquidation

What is a redemption provision and when would a corporation do this

Redemption provision is a call feature on preferred shares. A company would do this if the required dividend rate on a new preferred share is lower than the dividend on the current issue, this is exactly the same as a call feature on a bond.



If a company is paying 8% on dividends but can reissue it at 6% then it will exercise a call feature and then re-issue it’s dividends on the lower percent so long as the calculated call premium is still lower

Why is Canada one of the most developed markets for preferred shares in the world? Two reasons

Dividends received from a taxable Canadian company are exempt from taxes since they’ve already paid taxes. This is an attractive opportunity for corporations to earn a tax-free low risk return on excess cash balances.



Second, taxes paid on dividend income are much lower than interest income. This tax advantage reduces the attraction of debt securities and encourages individuals to invest in preferred shares

Retractable preferred shares

Opposite of the call feature whereby the holder has the right to request of the issue were pre-purchased the preferred share



You would do this if you can see other similar companies are getting a higher interest dividend pay back

Floating rate preferred shares

The dividend rate floats along with interest rates on the market and is usually based on prime rate of chartered banks

Convertible preferred shares

Holder has the option of converting the preferred shares into a predetermined number of common shares on a specific date. The market prices based on the dividend rate but also on the changing price of the common shares

Convertible preferred shares

Holder has the option of converting the preferred shares into a predetermined number of common shares on a specific date. The market prices based on the dividend rate but also on the changing price of the common shares

Dutch auction preferred shares

No stated maturity and can be viewed as a perpetuity



The dividend rate is reset on a regular basis and can occur weekly quarterly or at some point in between.



Institutional investors are the principal participants in the building with the highest bedwetting the portion of the offering sought. This seems exactly like the United States treasury auctioning bills out to large investment banks



Yields are comparable to commercial paper

Convertible preferred shares

Holder has the option of converting the preferred shares into a predetermined number of common shares on a specific date. The market prices based on the dividend rate but also on the changing price of the common shares

Dutch auction preferred shares

No stated maturity and can be viewed as a perpetuity



The dividend rate is reset on a regular basis and can occur weekly quarterly or at some point in between.



Institutional investors are the principal participants in the building with the highest bedwetting the portion of the offering sought. This seems exactly like the United States treasury auctioning bills out to large investment banks



Yields are comparable to commercial paper

OTC exchange

Over the counter exchanges an intangible market for the trading of common and preferred shares not listed on an organized exchange just like NASDAQ



There are two types of securities exchanges: physical an artificial exchanges, New York Stock Exchange and the TSX or physical locations were people go in order to bid

Convertible preferred shares

Holder has the option of converting the preferred shares into a predetermined number of common shares on a specific date. The market prices based on the dividend rate but also on the changing price of the common shares

Dutch auction preferred shares

No stated maturity and can be viewed as a perpetuity



The dividend rate is reset on a regular basis and can occur weekly quarterly or at some point in between.



Institutional investors are the principal participants in the building with the highest bedwetting the portion of the offering sought. This seems exactly like the United States treasury auctioning bills out to large investment banks



Yields are comparable to commercial paper

OTC exchange

Over the counter exchanges an intangible market for the trading of common and preferred shares not listed on an organized exchange just like NASDAQ



There are two types of securities exchanges: physical an artificial exchanges, New York Stock Exchange and the TSX or physical locations were people go in order to bid

Capital

Do you know its long-term funds of a firm, all items on the right side of the firms balance sheet with an obvious financing cost excluding current liabilities like payables and across

Who’s more powerful, creditors or common shareholders

Credit is going to have more power because they can put affirmative bankruptcy if the company fails to meet the conditions of the loan that they lent them

Claims on income and assets


Who is paid first?

Creditors are paid first with principal and interest



Preferred shareholders are entitled to receive dividends and are accumulated if the firm fails to pay. Call me shareholders have Claymont all residual income after the two previous payments are made.



Creditors are primary two claims on assets of a firm versus equity holders. If the firm fails


If a firm fails, what happens and how was distribution ordered

Assets are sold and the proceeds are distributed: government, employees, customers, secured creditors, unsecured creditors, preferred shareholders, call them shareholders.