1- Bond issuing.

The most common process for issuing bonds is through underwriting. When a bond issue is
underwritten, one or more securities firms or banks, forming a syndicate, buy the entire issue
of bonds from the issuer and re-sell them to investors

2- Key characteristics of bond.

 Face value

Corporate bonds normally have a par value of $1,000, but this amount can be much greater for
government bonds.

 Interest

Most bonds pay interest every 6 months, but it's possible for them to pay monthly, quarterly or annually.

 Coupon or interest rate

Fixed-rate bonds generate a constant interest rate. You receive the same amount each year or month,
depending on the interest payment schedule.

There are also 2 types of floating-rate bonds. The interest rate is either set in advance each year or tied to
market rates.

Step-up bonds have yields that increase over a set period

Other bonds have an adjustable floating rate, tied to market rates such as Treasury bills. If Treasury bill
yields to up, the investor wins out. The reverse also is true: if yields go down, the bond issuer wins out.

Fixed-rate bonds are therefore considered safer than floating-rate bonds, but their yield may be lower.

 Maturity

Maturities can range from as little as one day to as long as 30 years (though terms of 100 years have been
issued!

A bond that matures in one year is much more predictable and thus less risky than a bond that matures in
20 years. Therefore, the longer the time to maturity, the higher the interest rate. Also, a longer term bond
will fluctuate more than a shorter term bond.
3- Bond valuation.
Bond valuation is a technique for determining the theoretical fair value of a particular bond. Bond
valuation includes calculating the present value of the bond's future interest payments, also known as its
cash flow, and the bond's value upon maturity, also known as its face value or par value. Because a
bond's par value and interest payments are fixed, an investor uses bond valuation to determine what rate
of return is required for a bond investment to be worthwhile.

4- Bond yields.
Bond yield is the return an investor realizes on a bond. The bond yield can be defined in different
ways. Setting the bond yield equal to its coupon rate is the simplest definition. The current
yield is a function of the bond's price and its coupon or interest payment, which will be more
accurate than the coupon yield if the price of the bond is different than its face value. More
complex calculations of a bond's yield will account for the time value of
money and compounding interest payments. These calculations include yield to
maturity (YTM), bond equivalent yield (BEY) and effective annual yield (EAY).

5- Bonds with semiannual coupons.

Semi-annual bond basis (SABB) is a conversion metric that allows investors to compare
rates on bonds with varying characteristics. By using a semi-annual bond basis (SABB),
the conversion of the interest rate of a bond which pays other than semi-annually into its
equivalent to makes evaluation easier.

6- Assessing the riskiness of bonds.

 Interest Rate Risk and Bond Prices
Interest rates and bond prices have an inverse relationship; as interest rates fall, the price of bonds trading in the
marketplace generally rises. Conversely, when interest rates rise, the price of bonds tends to fall.

 Reinvestment Risk and Callable Bonds

Another danger that bond investors face is reinvestment risk, which is the risk of having to
reinvest proceeds at a lower rate than the funds were previously earning. One of the main ways
this risk presents itself is when interest rates fall over time and callable bonds are exercised by the
issuers.

The callable feature allows the issuer to redeem the bond prior to maturity. As a result,
the bondholder receives the principal payment, which is often at a slight premium to the par value.
  Inflation Risk and Bond Duration
What happens if the cost of living and inflation increase dramatically, and at a faster rate than income
investment? When that happens, investors will see their purchasing power erode and may actually achieve
a negative rate of return (again factoring in inflation).

 Credit/Default Risk of Bonds

Many investors don't realize that corporate bonds aren't guaranteed by the full faith and credit of
the U.S. government, but instead depend on the corporation's ability to repay that debt.

Investors must consider the possibility of default and factor this risk into their investment decision.

 Rating Downgrades of Bonds

If a company's credit rating is low or its ability to operate and repay is questioned, banks and lending
institutions will take notice and may charge the company a higher interest rate for future loans. This can
have an adverse impact on the company's ability to satisfy its debts with current bondholders and will hurt
existing bondholders who might have been looking to unload their positions.

 Liquidity Risk of Bonds

There is a risk that an investor might not be able to sell his or her corporate bonds quickly due to
a market with few buyers and sellers for the bond.

Low buying interest in a particular bond issue can lead to substantial price volatility and possibly
have an adverse impact on a bondholder's total return (upon sale

7- Bond markets.
The bond market (also debt market or credit market) is a financial market where participants can issue
new debt, known as the primary market, or buy and sell debt securities, known as the secondary market.
This is usually in the form of bonds, but it may include notes, bills and so on.

8- Legal rights and privileges of common stockholder.

Preemptive right is a privilege offered to existing shareholders for buying a specified number of shares of
the company's stocks before the stocks are offered to outsiders for sale. It is a provision in company's
charter or by-laws that gives the existing shareholders right to purchase new shares at a subscribed price

9- Types of ordinary stock.

Common Stock

Common stock is, well, common. When people talk about stocks in general they are most likely referring
to this type. In fact, the majority of stock issued is in this form. We basically went over features of
common stock in the last section. Common shares represent ownership in a company and a claim
(dividends) on a portion of profits. Investors get one vote per share to elect the board members, who
oversee the major decisions made by management.
Preferred Stock

Preferred stock represents some degree of ownership in a company but usually doesn't come with the
same voting rights. With preferred shares investors are usually guaranteed a fixed dividend forever. This
is different than common stock, which has variable dividends that are never guaranteed. Another
advantage is that in the event of liquidation preferred shareholders are paid off before the common
shareholder. Preferred stock may also be callable, meaning that the company has the option to purchase
the shares from shareholders at anytime for any reason (usually for a premium).

10-The market for ordinary stock.

Ordinary stock shareholders receive their dividend payment after preferred stock
shareholders. Market forces, the value of the underlying business and investor sentiment determine the
market value that investors pay for ordinary shares.

11-Ordinary stock valuation.

Common stock valuation is the process of determining the value of a share of stock in a company. The
holder of one share in a company that has one million shares outstanding is actually the owner of one-
millionth of the company; the value of that share should represent that percentage of the company's worth.

12-Actual share prices and returns.

That is because investors move out of bonds seeking better returns on stock. This increases demand
for stock and the price of the stock rises relative to its earnings. Also, low interest rates are
thought to benefit earnings, so investors are expecting future earnings increases.

13-Stand alone risk.

Standalone risk measures the dangers associated with a single facet of a company's operations or by
holding a specific asset, such as a closely-held corporations. In portfolio management, standalone
risk measures the undiversified risk of an individual asset

14-The tradeoff between risk and return.

Higher risk is associated with greater probability of higher return and lower risk with a greater probability
of smaller return. This trade off which an investor faces between risk and return while considering
investment decisions is called the risk return trade off.
15-Risk in a portfolio context.
Risk in a portfolio context. In the preceding section, we considered the riskiness of assets held in
isolation. Diversifiable risk is also known as unsystematic risk or company-specific risk and no
diversifiable risk is also known as systematic risk or market risk.

16-The relationship between risk and rates of return.

risk and rate-of-return are directly related. As the risk level of an investment increases, the
potential return usually increases as well. As investors move up the pyramid, they incur a greater risk of
loss of principal along with the potential for higher returns.

17-Types of investment projects.

 Growth investments.
 Shares.
 Property.
 Defensive investments.
 Cash investments include everyday bank accounts, high interest savings accounts and term
deposits.
 Fixed interest.

18-Investment process.
An investment process is a set of guidelines that govern the behavior of investors in a way which allows
them to remain faithful to the tenets of their investment philosophy that is the key principles which they
hope to facilitate outperformance.

19-Non discounted appraisal techniques.

 Payback Period
 Accounting Rate of Return
20-Discounted cash flow techniques.
Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on
its future cash flows. If the value calculated through DCF is higher than the current cost of the investment,
the opportunity should be considered.

21-Elements of operating cash flows.

Operating cash flow is a measure of the amount of cash generated by a company's normal business
operations. Operating cash flow indicates whether a company can generate sufficient positive cash flow to
maintain and grow its operations, or it may require external financing for capital expansion. Generally
Accepted Accounting Principles (GAAP) require public companies to calculate operating cash flow using
an indirect method by adjusting net income to cash basis using changes in non-cash accounts, such as
depreciation, accounts receivable, and changes in inventory.

22-Elements of investing cash flows.

Cash flow from investing activities is an item on the cash flow statement that reports the aggregate
change in a company's cash position resulting from investment gains or losses and changes resulting from
amounts spent on investments in capital assets, such as plant and equipment.

23-Elements of financing cash flows.

The section of the cash flow statement titled Cash Flow from Financing Activities accounts
for inflows and outflows of cash resulting from debt issuance and financing, the issuance of any new
stock, dividend payments, and any repurchase of existing stock.