第03章 资本市场(讲义)简易版

Section 3.1 Text

⏹Purpose and Participants

Firms that issue capital market securities and the investors who buy them have very different motivations than they have when they operate in the money market. Firms and individuals use the money market primarily to warehouse funds for short periods of time until a more important need or a more productive use for the funds arises. By contrast, firms and individuals use the capital market for long-term investments. The capital markets provide an alternative to investment in asset such as real estate or gold. Meanwhile, the primary reason that individuals and firms choose to borrow long-term funds is to reduce the risk that interest rates will rise before they pay off their debt. This reduction in risk comes at a cost. However, most long-term interest rates are higher than short-term rates due to risk premiums. Despite the need to pay higher interest rates to borrow in the capital markets, these markets remain very active.

The primary issuers of capital market securities are governments and corporations. However, governments never issue stocks.

Corporations both issue bonds and stocks. One of the most difficult decisions a firm faces can be whether it should finance its growth with debt or equity. The distribution of a firm’s capital between debt and equity is its capital structure.

⏹Trading in the Capital Market

Capital market trading occurs in either the primary market or the secondary market. Investment funds, corporations, and individual investors can all purchase securities offered in the primary market, where new issues of stocks and bonds are introduced. When firms sell securities for the first time, the issue is an initial public offering.

The capital markets have well-developed secondary market. A secondary market is where the sale of previously issued securities takes place, and it is important because most investors plan to sell long-term bonds before they reach maturity and eventually to sell their holdings of stocks as well.

1. Bonds

The capital markets are where securities with original maturities of greater than one year trade. Capital market securities fall into three categories: bonds, stocks, and mortgages. In this section, we focus on bonds.

Bonds are securities that represent a debt owed by the issuer to the investor. Bonds obligate the issuer to pay a specified amount at a given date.

Treasury Bonds

The government issues notes and bonds to finance the national debt. The difference between notes and bonds is that notes have an original maturity of 1 to 10 years while bonds have an original maturity of 10 to 30 years. (Recall from last chapter that Treasury bills mature in less than 1 year.)

Government notes and bonds are free of default risk because the government can always print money to pay off debt if necessary.

Corporate Bonds

When large corporations need to borrow funds for long periods of time, they may issue bonds. The bond indenture is a contract that states the lender’s rights and privileges and the borrower’s obligations. Any collateral offered as security to the bondholders will also be described in the indenture.

The degree of risk varies widely among issues because the risk of default depends on the company’s health, which can be affected by a number of variables. The interest rate on corporate bonds varies with the level of risk. Bonds issued by a company with high credit rating has lower interest rates than those with poor ratings.

2. Stocks

Shares of stock in the firm represent ownership. A stockholder owns a percentage interest in a firm consistent with the percentage of outstanding stock held. The ownership is in contrast to a bondholder, who holds no ownership interest but is rather a creditor of the firm.

Ownership of stocks gives the stockholder certain rights regarding the firm. One is the right of a residual claimant: Stockholders have a claim on all assets and income left over after all other claimants have been satisfied. If nothing is left over, they get nothing. As noted, however, it is possible to get rich as a stockholder if the firm does well.

Investors can earn a return from stocks in one of two years. Either the price of the stock rises over time, or the firm pays the stockholder dividends. Frequently, investors earn a return from both sources. Stocks are more risky than bonds because stockholders have a lower priority than bondholders when the firm is in trouble. The returns to investors are less assured because dividends can be easily changed, and stock price increases are not guaranteed. Despite these risks, it is possible to make a great deal of money by investing in stocks, whereas it is very unlikely by investing in bonds. Another distinction between stocks and bonds is that stocks do not mature.