16.1 Capital Markets: A Quick Review

In Chapter 8, we looked at the different rates of return over time for some different investment choices. The lowest returns were for short-term government securities, and the highest returns were for small-company stocks. In general, the debt market (bonds) had lower returns and lower variances (they were less risky) than the equity markets (stocks). Now we want to flip the coin from the buyer or investor side to the seller or borrower side.

Because a public company is a separate entity, it can acquire funds from all types of investors: banks, bondholders, preferred stockholders, and company owners (the shareholders). These sources of capital, regardless of their classification, all consider their purchases ...

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