MGMT 425 Toma Final Exam

capital market - Answer- system that allocates financial resources in the form of debt and equity according to their most efficient uses main purpose of a capital market - Answer- to provide a mechanism through which those who wish to borrow or invest money can do so efficiently two primary means by which companies obtain external financing - Answer- debt and equity debt - Answer- loan in which the borrower promises to repay the borrowed amount (principal) plus a predetermined rate of interest company debt normally takes the form of - Answer- bonds bonds - Answer- debt instrument that specifies the timing of principle and interest payments holder of a bond (lender) can force the borrower into bankruptcy if - Answer- the borrower fails to pay on a timely basis bonds issued for the purpose of funding investments are commonly issued by - Answer- private-sector companies and by municipal, regional, and national governments equity - Answer- part ownership of a company in which the equity holder participates with other part owners in the company's financial gains and losses equity normally takes the form of - Answer- stock stock - Answer- shares of ownership in a company's asset that give shareholders a claim on the company's future cash flows shareholders may be rewarded with - Answer- dividends or by the increases in the value of their shares dividends - Answer- payments made out of surplus funds they are not guaranteed but are determined by the company's boat of directors and based on financial performance liquidity - Answer- ease with which bondholders and shareholders may convert their investment into cash international capital market - Answer- network of individuals, companies, financial institutions, and governments that invest and borrow across national boundaries