(Capital Market)
a. A corporate bond a debt obligation, like an IOU. Investors who buy corporate bonds are lending money to the company issuing the bond. In return, the company makes a legal commitment to pay interest on the principal and, in most cases, to return the principal when the bond comes due, or matures.
b. Companies use the proceeds from bond sales for a wide variety of purposes, including buying new equipment, investing in research and development, buying back their own stock, paying shareholder dividends, refinancing debt, and financing mergers and acquisitions.
c. Principal buyers of corporate bonds include life insurance companies, pension funds, and households (Capital Market)
a. Agency bonds are issued by two types of entities: (1) Government Sponsored Enterprises (GSEs), usually federally-chartered but privately-owned corporations; and (2) Federal Government agencies which may issue or guarantee these bonds—to finance activities related to public purposes, such as increasing home ownership or providing agricultural assistance.
b. Among the government agencies that issue agency bonds are the Federal National Mortgage Association (FNMA, or Fannie Mae), the Government National Mortgage Association (GNMA, or Ginnie Mae), the Federal Home Loan Mortgage Corporation (FHLM, or Freddie Mac), Federal Farm Credit Bank, and Tennessee Valley Authority to finance such items as new mortgages, farm loans, or power generation. a. Transaction costs are time and money spent in carrying out financial transactions (making of real estate loans or the purchase of government securities) Such costs include legal fees, accounting costs, equipment expenses, and so on.
b. an decrease transaction costs because their large size allows them to take advantage of economies of scale. involve reductions in average cost for a single type of product.
c. Large financial intermediaries can take advantage of specialization of labor and management and the use of efficient equipment which result in efficiencies and thus cost reductions for a product.
d. With economies of scale, a financial intermediary slides downward along its average cost curve for a good, say, business loans as seen in Figure 1. This means that the average transaction cost for business loans falls as more business loans are made.
Examples:
-Wells Fargo Bank relies standardized legal contracts (because makes many loans), so the costs of writing contracts are spread over many loans.
-Well Fargo loan officers specialize in evaluating and processing business loans, they can process loans efficiently, decreasing the time required, and thus, the cost per loan.
-Wells Fargo also takes advantage of sophisticated computer systems that reduce the average cost of business loans. (Depository institution)
a. A financial cooperative. This means that a credit union is "mutual" organization that is owned by its depositors who are called "members." must be a member of a credit union to conduct business with the credit union.
b. In recent years, many credit unions have opened their doors to the general public.
c. relatively small, with assets less than $100
d. not-for-profit cooperatives, main goal is to provide services for members, rather than deliver a profit for a removed group of stockholders. Do not issue stock for a removed group of stockholders. Also, because credit unions are not-for-profit institutions, they are not subject to federal income taxes—this adds to their competitiveness in the finance industry.
e. pass surplus money (profit) on to members in the form of higher interest (dividends) on deposits, lower interest rates on loans, fewer fees to borrowers, and more services. Thus, credit unions are intended to provide benefits to its members.
f. most outstanding feature of credit unions is that they are member-owned and member-run, thus being a democratically-controlled enterprise. They are designed to serve their members who are also the de-facto owners. alloy
6 types
U.S. mint mark (shows where produced)
Liberty and the Latin motto E Pluribus Unum, meaning "out of many, one."
Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal Tender," which states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal Reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."
Private businesses do not have to accept coins
Should we get rid of coins?
YES
Canada minted its last penny in 2012; and New Zealand eliminated one- and two-cent coins in 1990 and its five-cent coin in 2006.
costs more to make than they worth
NO
Over the past decade, the Mint roughly doubled the number of pennies and nickels it shipped. Both coins enjoy widespread popular support in opinion polls as well.
They help create demand for more profitable coins in the cash economy. Eliminating pennies and nickels could make people think coins overall aren't useful. And if we stop using all coins, the Mint will lose $400 million of profit a year.
Eliminating the penny and nickel might suggest to the world that the U.S. currency is no longer strong and secure inversely related
if int rate is 5% a $1000 face value bond will yield $50 annually. Once interest rate increases to, say, 7.5%, new bonds will be selling at 75% annual payments. To remain competitive, the bond with a $50 annual yield will need to sell at whatever $50 is 7.5 % of, which is $667 (50/0.075). Since you bought the bond at $1000 and must sell it at $667, it results in a capital loss of (1000-667= $333)
If int rate is 5% the $1000 face value bond will again yield $50 int annually. If interest rates drop to 2.5%, bonds will now receive payments of $25 annually. The bond paying $50 will be highly attractive so bond holders will build up the price of the bond to the amount that $50 is 2.5% of, which is $2000 (50/0.025)
What Influence Interest Rates?
Interest rates typically increase when the economy is growing, and decrease during economic downturns.
rising inflation leads to rising interest rates, and moderating inflation leads to lower interest rates.
monetary policy of the Federal Reserve affects interest rates and thus the price of bonds. ACCOUNTINGThunder Cat Services specializes in training and veterinary services to household pets, such as dogs, birds, lizards, fish, horses, and of course, cats. After the first 11 months of operations in 2018, Thunder Cat has the following account balances:
$$
\text{THUNDER CAT SERVICES}\\ \text{Trial Balance}\\ \text{November 30, 2018}\\ \begin{matrix}
\text{Accounts} & \text{Debits} & \text{Credits}\\ \hline
\text{Cash} & \text{$\$ 19,400$} & \text{ }\\
\text{Supplies} & \text{$1,500$} & \text{ }\\
\text{Prepaid Rent} & \text{$7,200$} & \text{ }\\
\text{Equipment} & \text{$83,700$} & \text{ }\\
\text{Buildings} & \text{$240,000$} & \text{ }\\
\text{Accounts Payable} & \text{ } & \text{$\$9,800$}\\
\text{Deferred Revenue} & \text{ } & \text{$2,000$}\\
\text{Common Stock} & \text{ } & \text{$125,000$}\\
\text{Retained Earnings} & \text{ } & \text{$75,500$}\\
\text{Dividends} & \text{9,000} & \text{ }\\
\text{Service Revenue} & \text{ } & \text{264,000}\\
\text{Salaries Expense} & \text{$65,000$} & \text{ }\\
\text{Advertising Expense} & \text{$18,200$} & \text{ }\\
\text{Utilities Expense} & \underline{32,300} & \text{\_\_\_\_\_}\\
\text{Totals} & \underline{\underline{\$ 476.300}} & \underline{\underline{\$ 476,300}}\\
\end{matrix}
$$
The following transactions occur during December 2018:
$$
\begin{matrix}
\text{December 1- 31} & \text{Throughout the month, Thunder Cat provides services to customers for cash, $\$ 27,400$.}\\
\text{December 4} & \text{Purchase pet supplies on account, $\$ 2,900$ .}\\
\text{December 8} & \text{Pay for fliers to be distributed to local residences to advertise the company's services, $\$ 3,200$}\\
\text{December 9} & \text{Pay for supplies purchased on December $4 .$}\\
\text{December 12} & \text{Issue additional shares of common stock for cash, $\$ 5,000$ .}\\
\text{December 16} & \text{Pay cash on accounts payable, $\$ 6,300$ .}\\
\text{December 19} & \text{Purchase equipment with cash, $\$ 7700$ .}\\
\text{December 22} & \text{Pay utilities for December, $\$ 4,500 .$}\\
\text{December 24} & \text{Receive cash from customers for services to be provided next January, $\$ 2,300$ .}\\
\text{December 27} & \text{One of Thunder Cat's trainers takes a part-time job at the zoo and earns a}\\
\text{ } & \text{salary of $\$ 1,200$ . The zoo and Thunder Cat Services are separate companies.}\\
\text{December 30} & \text{Pay employee salaries for the current month, $\$ 7,000$ .}\\
\text{December 31} & \text{Pay dividends to stockholders, $\$ 3,000$ .}\\
\end{matrix}
$$
1. Record each transaction. 2. Post each transaction to the appropriate T-accounts. 3. Calculate the balance of each account at December 31. 4. Prepare a trial balance as of December 31.