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Chapter 2 Financing strategy
EVALUATION, normal rate = coupon rate
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normal rate = coupon rate
interest = par value x coupon rate
eg 10% bond, so 10% is CR
bond price :arrow_down: = interest :arrow_up: + principal
market interest rate increase,
bond price decrease
sbb bond price hv INVERSE rship
w prevailing market interest rate
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- overall cost of finance
- used for project evaluation as it represent invstor's overall required return rate
INCREASE bus risk,
DECREASE fin risk
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- herding :arrow_right: obvious intent by invstor to copy behavior of other invstor
- cognitive dissonance :arrow_right: discomfort when their behavior NOT align their values or beliefs
- narrow framing :arrow_right: fail to see bigger pic & focus on ST
- availability bias :arrow_right: focus more on avail. & recent info
- conservatism :arrow_right: invstor resist to change their opi