Financialinstruments金融工具教学课件

Financialmarkets&instrumentsBusinessesraisemoneytofinancecurrentoperationsaswellasforfuturegrowthMoneyisraisedInfinancialmarkets(capitalmarketsandmoneymarkets)Byissuingfinancialinstruments(alsocalledsecurities)whichgivetheholdersclaimsonfuturecashflowsofthebusiness1FinancialmarketsFinancialmarketsdescribesthedistributionsystembywhichcash-deficitentitiesengageintransactionswithcash-surplusentities.Besidesbusinesses,participantsincludegovernmentagencies,pensionfunds,endowments,individuals,commercialbanks,insurancecompanies…RegulatedbySecurities&ExchangeCommissionCapitalmarketsdealwithlongterminstrumentslikestocksandbondswhilemoneymarketsdealwithshort-terminstrumentswithmaturitylessthanoneyearsuchascommercialpaper.2FinancialinstrumentsInstrumentsmustappealtoinvestorsandmeettheneedsofthecompany.TheyaredesignedkeepinginmindInvestors’claimsonfuturecashflowsInvestors’righttoparticipateincompanydecisionsInvestors’claimsoncompanyassetsintheeventofliquidationSECregulationsrequireadequatedisclosurebeforepurchase.3TypesofinstrumentsDebtinstrumentsofferfixedclaims.Equityoffersresidualclaims.Hybridssuchasconvertibledebtcombineboth.Derivativessuchasforwards,futuresandoptionsprovideahedgeagainstrisk4BONDSFixedincomesecurity–interestpaidperiodicallyRepaymentofprincipalatmaturity.Bondsaresoldtothepublicinsmallincrements,suchas$1000,andcanbetradedonanexchangeafterissue.Yield(returnwithreferencetomarketprice)inverselyrelatedtomarketprice5BondcharacteristicsParvalueMaturitydateCouponrateCurrentyieldvs.yieldtomaturity(YTM)SinkingfundforperiodicrepaymentofprincipalVariableratevs.fixedratebonds6CallProvisions提前赎回条款Righttoretirebondspriortomaturity.Investorsrequireapremiumforcallprovisions.Callpriceistypicallyamodestpremiumabovepar.Delayedcallpreventsretirementbeforesomedate.Calloptionshelpcompaniestakeadvantageofdeclinesininterestratesandrearrangecapitalstructure7Covenants契约Contractualtermstoprotectbondholdersbyimpactingmanagementdecisions.Examples:LowerlimitoncurrentratioUpperlimitonD/EratioRequiredapprovalbybondholdersbeforemajoracquisitionorsaleofassetsBondholdershavenodirectsayinacompanyunlessitdefaultsonitsinterest,sinkingfund,orcovenantobligations.8RightsinLiquidation清偿权利RightsofabsolutepriorityGovernmentinrespecttotaxespastdueSeniorcreditorsGeneralcreditorsSubordinatedcreditorsPreferredshareholdersCommonshareholders9SecuredCreditorsSecuredcreditinvolvescollateral.Inliquidation,proceedsfromthesaleofcollateralonlygotothesecuredcreditoruptotheamountofthesecuredcredit.Anyresidualgoesintothepoolsharedbytheotherinvestors.Ifthesaleofcollateralisinsufficient,thesecuredcreditorbecomesageneralcreditorforthebalance.10Bonds–Issuer’sperspective

Advantages:LowercostoffundsInterestistaxdeductibleNolossofcontrol

Disadvantages:InterestpaymentmandatoryRedemptioncashoutflows11Bonds–investor’sperspectiveFixedincome,nocapitalappreciationConvertiblebondsseektoprovidebothRisk–returntradeoffLesserriskthanequity,lowerreturnsAnnualizedreturnsover10yrsforBarclaysBondIndex7.6%vs.S&P50010.4%AlsoreferTable5-1Realvs.nominalreturnsir=(1+in)/(1+p)-1whereir=Realreturn,in=Nominalreturn,p=Inflationrate

12TABLE5-1RateofReturnonSelectedU.S.Securities1900-201913BondratingsExpressionoftheopinionoftheratingagencyonthecreditworthinessoftheborrowerMeasurescreditrisk/defaultriskCreditratingagencies-S&P,D&B,Moody’sAAA–HighcreditworthinessBBB–AdequateCCC-PoorD–DefaultBondratingsandinterestrates14JunkBondsInvestmentgradeis“BBB”andabove.Junkbondsarespeculativeorhighyieldbondsandarebelowinvestmentgrade.Junkbondmarketisanalternativetobankandinsurancecompanyloansforsmaller,lessprominentcompanies.Junkbondshavebeenusedtofinancemergersandacquisitions.15EQUITYorCOMMONSTOCKResidualincomesecuritiesRepresentownershipsecurities-proportionatetoshareholdingRighttocontrol-VotingrightsShareholdersarerepresentedthroughaboardofdirectors,throughwhichtheyexercisecontrol.Rightinliquidation–residualclaimoverassetsRiskierthandebtinstruments16RiskandreturnWhatistheexpectedrateofreturnonequity?

Rateofreturn=Dividendyield+capitalappreciation =Div/Mktprice+%changeinsharepriceRisk–returntradeoff:Highertheriskinaninvestment,highertheexpectedreturnsEquityinvestorsexpectariskpremiumtocompensatefortheenhancedriskSoreturnonequity=Riskfreerate+RiskpremiumRiskfreeratetakenasGovt.BondrateRiskpremium(Table5-1)=11.6-5.3=6.3%17Commonstock(contd)Advantagestoinvestor*Higherreturnsthandebt *Liquidity *WealthsharingDisadvantagestoinvestor*Higherrisk*Dividendpaymentnotmandatory18Commonstock(contd)Advantagestoissuer *Dividendpaymentnotmandatory *Noredemptioncashoutflows *Higherequitymeansbetterborrowingability Disadvantages*Costliersourceoffundsthandebt*Dilutionincontrol*Dividendsnottaxdeductible(unlikeinterest)19Anoteonretainedearnings……Readilyavailablesourceoffundsinternally(internalequity)NoissuecostsNodilutionincontrolReflectstherobustnessofcompany’shealthandreducesdependanceonoutsidefundingTheonlypointtoberememberedisthatretainedearningsalsohasacostintermsofopportunitycosttoinvestors20HigherpriorityovercommonstockholdersinpaymentofdividendsandinrepaymentofcapitalAnnualfixeddividendatcouponratexparvalueDividendisdiscretionaryCumulativedividendsfeatureDividendnottaxdeductibleforissuerNovotingrightsexceptinmatterswhichconcernthemPREFERREDSTOCK21Preferredstock(contd)Totheinvestor:Lesserrisk,butlesserreturnsandlessliquidthancommonstockTotheissuer:Lessercost,dividendpaymentnotmandatory(butnottaxdeductible),nolossofcontrol22MARKETCHANNELSMarketChannelsforraisingfundsPrivateequityVenturecapitalInitialpublicoffers(IPOs)andseasonedequityissues(SEOs)ShelfregistrationPrivateplacementInternationalmarkets23PrivateEquityFinancingSourceoffundsforstartups,neworsmallbusinessesviewedastooriskyforbanklendingandtoosmalltoattracttheattentionofinvestorsinpublicmarkets.Fundingdonebystrategicinvestors,venturecapitalfirmswhoprovideseedmoneywithpotentialacquisitionontheirminds.24PrivateEquityPartnershipsStructuredaslimitedpartnershipswithaspecifieddurationsuchas10years.Generalpartneristheprivateequityfirm,whichraisesapoolofmoneyfromlimitedpartners,suchasinstitutionalinvestorsandinsurancecompanies.Limitedpartnershavelimitedliability.Typicalfeestructureis2and20,thesumofamanagementfeeand‘carriedinterest’basedoncapitalappreciation.Inducemanagerstocreatevalueoverlongrun25

VenturecapitalAventurecapitalcompanyisafinancinginstitutionwhichjoinsanentrepreneurasaco-promoterinaprojectandsharestherisksandrewardsoftheenterprise.Projectsaregenerallyhighriskwithpotentialhighrewards.Soughtbynew/untriedbusinesseshavinglittle/noaccesstopubliccapital/bankloans.26Venturecapital-featuresLongtermequityfinance–highstakes.Returnsthroughcapitalgainsatthetimeofexitbysellingoutequityholdingsathighpremiums.Selective-generallyseekaboveaveragereturns.Generallyfinancingofnew/untriedtechnology,new/notrackrecordpromotersNotonlyfinancingbutalsoactiveroleinmgmt.Mediumtolongterminvestmenthorizon.Incentivestopromotersonperformance.27ExitrouteGoingpublicSaleofsharestopromoter.Saleofcompanytoanothercompany–managementbuyinorbuyout.Sellingtoanewinvestor.Liquidation28FIGURE5-3VentureCapitalInvestmentinU.S.Companies29InitialPublicOfferings(IPOs)WhencompaniesraisecapitalforthefirsttimebyissuingnewsharesSeasonedequityofferings(SEOs)refertoissueofnewsharesbyacompanythatisalreadypubliclytraded(alreadymadeanIPO)Companyassessesproposalsfrominvestmentbanksandchoosesone–‘managingunderwriter’30IPORisksManagingunderwriteradvisesthecompanyonsecuritydesignregisterstheissuewiththeSEC(30-90days)orchestratesa“roadshow”assemblesanunderwritingsyndicatewhoengageinbookbuildingSyndicateactsaswholesaler.Offerpricesethoursbeforestockgoespublic.Companybearspriceriskduringtheregistrationprocess;syndicatebearsriskassociatedwithunsoldshares,whichtheycannotsellabovetheofferprice.31ShelfregistrationShelfregistrationisageneralpurposeregistrationgivingbroadtermsofthesecuritiestobeissued,gooduptotwoyears,thatallowsthefirmtogetquickapprovalAsingleunderwriteroftenbuystheentireissue.CutsthetimelagfromseveralmonthstoafewdaysCompetitivebidslowertheissuecosts.32PrivatePlacementCorporationscanavoidregisteringwithSECbyplacingthesecuritiesprivatelywithinstitutionalinvestors.Theprivateplacementmarketisabouthalfthesizeofthepublicmarket,excludingbankloans.Attractiveoptionifpublicinvestorsnotespeciallyreceptiveforreasonsofcomplexity.Advantagestocompanyarequickerandeasiertonegotiate,canbecustomtailoredtospecificneedsDisadvantageisthatasunregisteredsecuritiestheycannotbetradedonfinancialmarkets–lessliquidRule144Anowallowsfortradingofprivatelyplacedsecuritiesamonginstitutionalinvestors.33IssueCostsForprivatelynegotiatedtransactions,issuecostamountstotheinvestmentbankingfee.Forpublicissues,therearealsolegal,accounting,andprintingfees.Costcomparisons2.2%forstraightdebt.3.8%forconvertiblebonds.7.1%forsecondaryofferings.11%forIPOs.34ComparisonIPOPvt.PlmntCapitalraisedHighLesserDistributionWidelydistributedLimitedDilutionofControlHighLowerFloatationcost&timeHighLower35EfficientMarketsIssuesinraisingnewcapitalTimingPricingMarketefficiencyiswithreferencetohowquicklypricesincompetitivemarketsrespondtonewinformationEfficientmarketisonewherepricesadjustrapidlytonewinformationandcurrentpricesfullyreflectavailableinformation36EfficiencyinDegreesAmarketisweak-formefficientwhenpricesfullyreflectallinformationaboutpastpricesSemi-strongformefficientwhenpricesfullyreflectallpubliclyavailableinformationstrongformefficientwhenpricesfullyreflectallinformation,publicorprivate.37Empiricalevidence-implicationMarketsarenotstrongformefficient.Withlimitedexceptions,marketsaresemi-strongformefficientandhencePubliclyavailableinformationhasnopredictivepowerinrespecttomarketprices.Typicalinvestorsshouldnotexpecttoearnabnormalreturnstradingonpubliclyavailableinformation.Itispointlesstotimethepurchaseorsaleofthefirm’ssecurities.38ConclusionstoDrawApartfrommarketsentiment,managerscanuseprivateinformationabouttheirowncompaniesinmakingtimingdecisions.PricingdecisionsinpracticearebasedonMarketvalueFairvaluePricediscoverythrobookbuilding39ManagingRiskRiskisdefinedasthevariabilityofreturnsfromtheexpectedvaluesInfinancialmarketsvolatilityresultsinriskCompaniesusederivativestomanageriskandincentivizemanagers.Derivativesincludeforwards,futures,optionsSocalledastheirvalueisderivedfromthatoftheunderlyingassetswhichcouldbeshares/currency/commodities40ForwardcontractsYoucanbuyinspotmarkettodayforimmediatedelivery–spotcontract.Youcancontracttodayatapredeterminedpriceforfuturedelivery–forwardcontract.Bylockinginapricetoday,you