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Questions and Answers
What is a characteristic of a shareholder?
What is a characteristic of a shareholder?
- Shares risk with the company (correct)
- Has no voting rights
- Doesn't own any of the company capital
- Has a predefined repayment contract
A debtholder has voting rights in a company.
A debtholder has voting rights in a company.
False (B)
What is the purpose of rating agencies?
What is the purpose of rating agencies?
To provide credit ratings to companies
_____________________ are investment funds that finance nascent companies.
_____________________ are investment funds that finance nascent companies.
Match the types of equity investors with their characteristics:
Match the types of equity investors with their characteristics:
What is a characteristic of a debtholder?
What is a characteristic of a debtholder?
Corporate Venture Capital refers to investment funds that invest in large public companies.
Corporate Venture Capital refers to investment funds that invest in large public companies.
What is the primary objective of Corporate Venture Capital?
What is the primary objective of Corporate Venture Capital?
What is the main difference between Private Equity and Venture Capital?
What is the main difference between Private Equity and Venture Capital?
An Initial Public Offering (IPO) is used to finance the development of a company.
An Initial Public Offering (IPO) is used to finance the development of a company.
What is the main objective of a Private Equity fund?
What is the main objective of a Private Equity fund?
Bank loans are often used for financing because they can be obtained ___________ and offer flexible conditions.
Bank loans are often used for financing because they can be obtained ___________ and offer flexible conditions.
What is the primary risk for bond investors or banks in the case of a bank loan?
What is the primary risk for bond investors or banks in the case of a bank loan?
Bonds typically have a shorter maturity period than bank loans.
Bonds typically have a shorter maturity period than bank loans.
Match the following financing options with their characteristics:
Match the following financing options with their characteristics:
What is the nominal value of a bond?
What is the nominal value of a bond?
The coupon of a bond represents the ___________ interest payments to bondholders.
The coupon of a bond represents the ___________ interest payments to bondholders.
Listed bonds are traded on the financial market, while unlisted bonds are not.
Listed bonds are traded on the financial market, while unlisted bonds are not.
What is a disadvantage of crowdfunding for companies?
What is a disadvantage of crowdfunding for companies?
Crowdfunding campaigns do not allow donors or lenders to give their opinion on the project.
Crowdfunding campaigns do not allow donors or lenders to give their opinion on the project.
What can happen to participants in a successful crowdfunding campaign?
What can happen to participants in a successful crowdfunding campaign?
One type of crowdfunding is __________________, where investors are co-producers and receive royalties.
One type of crowdfunding is __________________, where investors are co-producers and receive royalties.
Match the types of crowdfunding with their descriptions:
Match the types of crowdfunding with their descriptions:
What is the main reason why investors may opt for shorter-term bonds?
What is the main reason why investors may opt for shorter-term bonds?
The bond price is determined by its coupon rate and term to maturity.
The bond price is determined by its coupon rate and term to maturity.
What are the three main risks that bond investors are exposed to?
What are the three main risks that bond investors are exposed to?
The interbank rate in Europe is composed of two structures: the __________ and the Euribor.
The interbank rate in Europe is composed of two structures: the __________ and the Euribor.
What is the purpose of the €STR rate?
What is the purpose of the €STR rate?
Central banks have no impact on the risk-free rate curve.
Central banks have no impact on the risk-free rate curve.
Match the following types of bonds with their characteristics:
Match the following types of bonds with their characteristics:
The credit rating agencies evaluate borrowers' ability to __________ debts.
The credit rating agencies evaluate borrowers' ability to __________ debts.
What is the highest credit rating issued by credit rating agencies?
What is the highest credit rating issued by credit rating agencies?
What is the graphical representation of the returns offered at each maturity date in a given country?
What is the graphical representation of the returns offered at each maturity date in a given country?
What is the primary goal of the finance department when forecasting cash flow?
What is the primary goal of the finance department when forecasting cash flow?
Issuing equity is a quick and easy way to raise finance.
Issuing equity is a quick and easy way to raise finance.
What is the term to maturity in the context of bonds?
What is the term to maturity in the context of bonds?
Debt holders require compensation in the form of a ______________ to investors.
Debt holders require compensation in the form of a ______________ to investors.
Match the following financial concepts with their descriptions:
Match the following financial concepts with their descriptions:
What is the main reason why companies consolidate cash demands into a single bond?
What is the main reason why companies consolidate cash demands into a single bond?
BMW's credit rating is A2.
BMW's credit rating is A2.
What is the face value of the bond BMW aims to issue?
What is the face value of the bond BMW aims to issue?
The formula to evaluate a bond is: =6*(1-(1+)^-15)/+(100/(1+_______)^15)
The formula to evaluate a bond is: =6*(1-(1+)^-15)/+(100/(1+_______)^15)
What is the result of a downgraded rating for a borrower?
What is the result of a downgraded rating for a borrower?
Crowdfunding is only used for financing cultural projects.
Crowdfunding is only used for financing cultural projects.
What is the primary difference between a donation without consideration and a gift with consideration in crowdfunding?
What is the primary difference between a donation without consideration and a gift with consideration in crowdfunding?
Crowdfunding is a form of _______________, where individuals or companies raise funds from a large number of people through digital platforms.
Crowdfunding is a form of _______________, where individuals or companies raise funds from a large number of people through digital platforms.
What is the purpose of equity crowdfunding?
What is the purpose of equity crowdfunding?
Microcredit is only used for financing large-scale projects.
Microcredit is only used for financing large-scale projects.
Match the following types of crowdfunding with their descriptions:
Match the following types of crowdfunding with their descriptions:
What advantage does crowdfunding provide for companies, beyond simple financial participation?
What advantage does crowdfunding provide for companies, beyond simple financial participation?
Crowdfunding platforms have specialized in areas such as _______________________, energy transition crowdfunding, and student loans.
Crowdfunding platforms have specialized in areas such as _______________________, energy transition crowdfunding, and student loans.
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Study Notes
Financing a Company
- A company can be financed through equity or debt
- Equity financing involves sharing risk with the company and does not require repayment
- Debtholder financing involves a predefined repayment contract and does not provide ownership or voting rights
Equity Financing
- Personal contributions: cash contributions to shareholder equity
- Love money: investments from friends and family with no expectation of profit
- Types of equity investors:
- Business angels: invest in early-stage companies with high risk (€1,000 to €100,000)
- Seed funds: invest in early-stage companies (€100,000 to €2,500,000)
- Venture capitalists: invest in nascent companies and provide advice (up to €1,000,000)
- Corporate venture capital: invest in large private companies with strategic and organizational objectives
- Private equity: invest in mature, non-publicly listed companies
- Investment funds: specialized in sectors, e.g. real estate, energy transition
- Initial public offering (IPO): selling shares on the financial market to raise capital
Debt Financing
- Bank loans: negotiated with a bank, with fixed terms and conditions
- Bond loans: issued directly on the financial market, with a predefined rate and maturity
- Characteristics of bonds:
- Maturity: life of the bond, usually 3-7 years for companies and up to 100 years for states
- Coupon: periodic interest payments to bondholders
- Nominal value: initial capital borrowed divided by the number of bonds issued
- Issue price: price at which the bond is issued
- Redemption price: repayment amount at maturity
Risk for Bond Investors
- Primary risk: company default
- Coupon or loan payments must be made regardless of company performance, with bankruptcy being the exception
Evaluating a Bond
- Yield to maturity: the total return on investment, including coupon and capital repayment
- Face value: the bond's par or face value
- Coupon rate: the periodic interest payment
- Maturity: the time to repayment
- Risk premium: compensation for riskier companies with a lower credit rating
Bond Price Calculation
- Formula: C = (F - (F / (1 + r)^n)) / r
- Where: C = coupon payment, F = face value, r = yield to maturity, n = time periods
Crowdfunding
- A financing method that disintermediates banks, using a digital platform with multiple people
- Types of crowdfunding:
- Donation without consideration: disinterested participation
- Gift with consideration: participation with a reward
- Loan or crowdlending: borrowing from multiple lenders
- Equity crowdfunding: investors become shareholders
- Community production: investors are co-producers and receive royalties
- Microcredit or solidarity microcredit: small sums of money to promote development
Advantages of Crowdfunding
- Financing a project without bank support
- Community collaboration and support
- Indirect market research and feedback
Disadvantages of Crowdfunding
- Significant costs, including platform commissions of up to 4-12% of funding obtained
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