DOCSLIB.ORG

1 a General Introduction to Risk, Return, and the Cost of Capital

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
1 a General Introduction to Risk, Return, and the Cost of Capital Notes 1 A General Introduction to Risk, Return, and the Cost of Capital 1. The return on an investment can be expressed as an absolute amount, for example, $300, or as a percentage of the total amount invested, such as eight per cent. The formula used to calculate the percentage return of an investment is: (Selling price of the asset – Purchase price of the asset + Dividends or any other distributions which have been paid during the time the financial asset was held) / Purchase price of the asset. If the investor wants to know her return after taxes, these would have to be deducted. 2. A share is a certificate representing one unit of ownership in a corporation, mutual fund or limited partnership. A bond is a debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. 3. In order to determine whether an investment in a specific project should be made, firms first need to estimate if undertaking the said project increases the value of the company. That is, firms need to calculate whether by accepting the project the company is worth more than without it. For this purpose, all cash flows generated as a consequence of accepting the proposed project should be considered. These include the negative cash flows (for example, the investments required), and posi- tive cash flows (such as the monies generated by the project). Since these cash flows happen at different points in time, they must be adjusted for the ‘time value of money’, the fact that a dollar, pound, yen or euro today is worth more than in five years. This adjustment is done by discounting (dividing) the future cash flows by a rate which reflects the return desired by the firm if undertaking the project under scrutiny. 4. Equity is the capital raised from owners, such as common stock shareholders. 5. The overall general upward price movement of goods and services in an economy, usually measured by the Consumer Price Index and the Producer Price Index. As the cost of goods and services increases over time, the value of a currency falls, since the purchasing power of individuals decreases. That is, with the same amount of money a person cannot buy as much as she could previously. 6. A note is a short-term debt security, usually with a maturity of five years or less. 7. Liquidity refers to the possibility of converting the asset (house, painting, share of stock, etc.) into cash quickly and with no loss of value. For example, if cash is needed in a hurry, the homeowner might not have time to find the best possible buyer for her house and some value will be lost during the transaction. On the other hand, common stocks traded in big markets are very liquid as they can be converted into cash fast and without any loss. 8. http://nihoncassandra.blogspot.com 9. A statistical measure of volatility. More generally, it measures the extent to which a series of values are spread around their average. 10. We could rank women attending a conference by height. Most of the population would group between 5’ 2” to 5’ 7”, while those taller or shorter would only be a small percentage of the population. Hence the probability that any one attendee 230 Notes 231 would fall under this range is larger than the probability that anyone would be 6’ 3” or 4’ 8”, for example. 11. Preferred stock is a hybrid security which combines the characteristics of debt and equity. 2 The Components of the Cost of Capital and Alternative Models 1. For their work on this, William Sharpe, Harry Markowitz and Merton Miller jointly received the Nobel Memorial Prize in Economic Sciences. 2. Black, F. and Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81 (May/June 1973), 637–54. 3. Copeland, T. E. and Weston, J. F. (1988). Financial theory and corporate policy. (3rd edition) Reading, MA: Addison-Wesley, 468–71. 4. Hsia, C. (1991). Estimating a firm’s cost of capital: An option pricing approach. Journal of Business Finance and Accounting, 18(2), 281–7. 5. Stephen A. Ross (1976). The arbitrage theory of capital asset pricing. Journal of Economic Theory (December), 241–60. 6. Chen, N., Roll, R. and Ross, S. A. (1986). Economic forces and the stock market. Journal of Business (1986), 383–403. 7. Fama, F. and French, K. (1992). The cross-section of expected stock returns, Journal of Finance (1992), 427–86. 3 Problems in Using the Models 1. A more in-depth discussion on the CAPM is provided in the Appendix. 2. Robert C. Merton (2003). Continuous-Time Finance. (Revised edition) Blackwell Publishing, 97–119 and 446–520. 3. F. Macaulay (1938). Some Theoretical Problems Suggested by the Movements of Interest Rates, Bond Yields and Stock Prices in the United States since 1856. New York: National Bu reau of E conom ic Resea rc h. Cite d i n B o d ie, Z . A . K a ne a nd Ma rc u s, A . J. Investments. (3rd edition) Irwin. 4. The right risk free rate to use in asset pricing models: A note. September 1998, www. stern.nyu.edu/~adamodar 5. The most widely used database, from Ibbotson Associates, has returns going back to 1926. Jeremy Siegel, at Wharton, recently presented data going back to the early 1800s. 6. Booth (1999) examines both nominal and real equity risk premiums from 1871 to 1997. While the nominal equity returns have clearly changed over time, he con- cludes that the real equity return average has been around 9 per cent over that period. He suggests adding the expected inflation rate to this number to estimate the expected return on equity. 7. Adapted from ‘Best Practices’ in Estimating the Cost of Capital: Survey and Synthesis’ (R. Bruner, K. Eades, R. Harris, and R. Higgins), Financial Practice and Education (Spring/Summer 1998). This reference was taken from the note prepared by Professor Robert Harris, and draws, in part, directly from ‘Best Practices’ in Estimating the Cost of Capital: Survey and Synthesis,’ and thanks go to the authors for their permission to reproduce these results. Copyright © 2004 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. 232 Notes 4 Caveats 1. Most flotation expenses are fixed, so the total cost of selling bonds and stocks is proportionally lower for large issues than for small ones. This may explain why firms prefer to raise large amounts of external funds infrequently rather than small amounts often. For issues of the same size, it has been shown that the cost of raising equity is higher than the cost of raising debt. 2. Fisher, I. (1930) The theory of interest. Library of Economics and Liberty. Retrieved March 21, 2010 from www.econlib.org/library/YPDBooks/Fisher/fshToI.html. 3. Amihud, Y. and Mendelson, H. (1989). Liquidity and cost of capital: Implications for corporate management. Journal of Applied Corporate Finance (Fall), 65–73. 4. The median is the numeric value splitting the upper and lower part of a distribution in half. To find this value we need to order all observations from the lowest value to the highest (or vice versa) and choose the one in the middle. 5. Kraus, A. and Litzenberger, R. (1976). Skewness preference and the valuation of risky assets. Journal of Finance (September), 1085–1100. 6. Black, F. and Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81, 637–54. 7. Several academic studies show that option-based compensation leads to a greater likelihood of earnings restatements and outright fraud. See Agrawal, A. and Chadha, S.(2006). Corporate governance and accounting scandals. Journal of Law and Economics, 371–406; Burns, N. and Kedia, S. (2006). The impact of performance-based com- pensation on misreporting. Journal of Financial Economics, 35–67; and Denis, D. J., Hanouna, P. and Sarin, A. (2006). Is there a dark side to incentive compensation? Journal of Corporate Finance (June), 467–88. 5 Country Risk 1. http://www.standardandpoors.com, http://www.moodys.com, http://www.fitchrat- ings.com 2. This column follows Moody’s descriptions. 3. Moody’s adds numeric modifiers 1, 2 and 3 to each generic classification for ratings Aa to Caa. Modifier 1 indicates that the instrument is of the highest quality within its category, modifier 2 indicates an average qualification and modifier 3 positions the instrument in the bottom bracket of the generic category. 4. Godfrey, S. and Espinosa, R. (1996). A practical approach to calculating costs of equity for investment in emerging markets. Journal of Applied Corporate Finance, 9(3), 80–90. 5. Erb, C., Harvey, C. and Viskanta, T. (1995). Country risk and global equity selection. The Journal of Portfolio Management (Winter), 74–83. 6. See note 5. 7. Estrada, J. (2000). The cost of equity in emerging markets: A downside risk approach. Emerging Markets Quarterly, 4 (Fall), 19–30 and Estrada, J. (2001). The cost of equity in emerging markets: A downside risk approach, II. Emerging Markets Quarterly (Spring), 63–72. 6 The Optimal Capital Structure 1. Modigliani, F. and Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261–97. Notes 233 2. Myers, S. C. (1984). The capital structure puzzle. Journal of Finance, 39(3), 575–92. 3. Williamson, O. (1983). Corporate finance and corporate governance. The Journal of Finance, 43(3), 567–91. 4. Jensen, M. and Meckling, W. (1976) Theory of the firm: Managerial behaviour, agency costs and capital structure.
Load more

Recommended publications
  • Chapter 06 - Bonds and Other Securities Section 6.2 - Bonds Bond - an Interest Bearing Security That Promises to Pay a Stated Amount of Money at Some Future Date(S)
    Chapter 06 - Bonds and Other Securities Section 6.2 - Bonds Bond - an interest bearing security that promises to pay a stated amount of money at some future date(s). maturity date - date of promised final payment term - time between issue (beginning of bond) and maturity date callable bond - may be redeemed early at the discretion of the borrower putable bond - may be redeemed early at the discretion of the lender redemption date - date at which bond is completely paid off - it may be prior to or equal to the maturity date 6-1 Bond Types: Coupon bonds - borrower makes periodic payments (coupons) to lender until redemption at which time an additional redemption payment is also made - no periodic payments, redemption payment includes original loan principal plus all accumulated interest Convertible bonds - at a future date and under certain specified conditions the bond can be converted into common stock Other Securities: Preferred Stock - provides a fixed rate of return for an investment in the company. It provides ownership rather that indebtedness, but with restricted ownership privileges. It usually has no maturity date, but may be callable. The periodic payments are called dividends. Ranks below bonds but above common stock in security. Preferred stock is bought and sold at market price. 6-2 Common Stock - an ownership security without a fixed rate of return on the investment. Common stock dividends are paid only after interest has been paid on all indebtedness and on preferred stock. The dividend rate changes and is set by the Board of Directors. Common stock holders have true ownership and have voting rights for the Board of Directors, etc.
    [Show full text]
  • Preparing a Venture Capital Term Sheet
    Preparing a Venture Capital Term Sheet Prepared By: DB1/ 78451891.1 © Morgan, Lewis & Bockius LLP TABLE OF CONTENTS Page I. Purpose of the Term Sheet................................................................................................. 3 II. Ensuring that the Term Sheet is Non-Binding................................................................... 3 III. Terms that Impact Economics ........................................................................................... 4 A. Type of Securities .................................................................................................. 4 B. Warrants................................................................................................................. 5 C. Amount of Investment and Capitalization ............................................................. 5 D. Price Per Share....................................................................................................... 5 E. Dividends ............................................................................................................... 6 F. Rights Upon Liquidation........................................................................................ 7 G. Redemption or Repurchase Rights......................................................................... 8 H. Reimbursement of Investor Expenses.................................................................... 8 I. Vesting of Founder Shares..................................................................................... 8 J. Employee
    [Show full text]
  • Options: Valuation and (No) Arbitrage Prof
    Foundations of Finance: Options: Valuation and (No) Arbitrage Prof. Alex Shapiro Lecture Notes 15 Options: Valuation and (No) Arbitrage I. Readings and Suggested Practice Problems II. Introduction: Objectives and Notation III. No Arbitrage Pricing Bound IV. The Binomial Pricing Model V. The Black-Scholes Model VI. Dynamic Hedging VII. Applications VIII. Appendix Buzz Words: Continuously Compounded Returns, Adjusted Intrinsic Value, Hedge Ratio, Implied Volatility, Option’s Greeks, Put Call Parity, Synthetic Portfolio Insurance, Implicit Options, Real Options 1 Foundations of Finance: Options: Valuation and (No) Arbitrage I. Readings and Suggested Practice Problems BKM, Chapter 21.1-21.5 Suggested Problems, Chapter 21: 2, 5, 12-15, 22 II. Introduction: Objectives and Notation • In the previous lecture we have been mainly concerned with understanding the payoffs of put and call options (and portfolios thereof) at maturity (i.e., expiration). Our objectives now are to understand: 1. The value of a call or put option prior to maturity. 2. The applications of option theory for valuation of financial assets that embed option-like payoffs, and for providing incentives at the work place. • The results in this handout refer to non-dividend paying stocks (underlying assets) unless otherwise stated. 2 Foundations of Finance: Options: Valuation and (No) Arbitrage • Notation S, or S0 the value of the stock at time 0. C, or C0 the value of a call option with exercise price X and expiration date T P or P0 the value of a put option with exercise price X and expiration date T H Hedge ratio: the number of shares to buy for each option sold in order to create a safe position (i.e., in order to hedge the option).
    [Show full text]
  • Leveraged Buyouts, and Mergers & Acquisitions
    Chepakovich valuation model 1 Chepakovich valuation model The Chepakovich valuation model uses the discounted cash flow valuation approach. It was first developed by Alexander Chepakovich in 2000 and perfected in subsequent years. The model was originally designed for valuation of “growth stocks” (ordinary/common shares of companies experiencing high revenue growth rates) and is successfully applied to valuation of high-tech companies, even those that do not generate profit yet. At the same time, it is a general valuation model and can also be applied to no-growth or negative growth companies. In a limiting case, when there is no growth in revenues, the model yields similar (but not the same) valuation result as a regular discounted cash flow to equity model. The key distinguishing feature of the Chepakovich valuation model is separate forecasting of fixed (or quasi-fixed) and variable expenses for the valuated company. The model assumes that fixed expenses will only change at the rate of inflation or other predetermined rate of escalation, while variable expenses are set to be a fixed percentage of revenues (subject to efficiency improvement/degradation in the future – when this can be foreseen). This feature makes possible valuation of start-ups and other high-growth companies on a Example of future financial performance of a currently loss-making but fast-growing fundamental basis, i.e. with company determination of their intrinsic values. Such companies initially have high fixed costs (relative to revenues) and small or negative net income. However, high rate of revenue growth insures that gross profit (defined here as revenues minus variable expenses) will grow rapidly in proportion to fixed expenses.
    [Show full text]
  • Corporations, Issuing Stock, Dividends
    Accounting Notes Characteristics of Corporations: Separate legal entity - a corporation is a distinct entity that exists apart from its owners (stockholders) Continuous life - the life of the corporation continues regardless of changes in the ownership of the corporation ˇs stock No mutual agency - a stockholder can not commit the corporation to a contract unless they are also on officer in the corporation. Limited liability of stockholders - stockholders have no personal obligation for the corporation ˇs liabilities. The most the stockholders can lose is the amount they invested in the corporation. Separation of ownership & management - stockholders own the business, but the board of directors manage the business. Corporate taxation - corporate income is subject to double taxation. Once at the corporate level and t hen at the stockholder ˇs level. Government regulation - corporations are subject to government regulation mainly to ensure that corporations disclose all information that investors and creditors need to have to make informed decisions. Stockholder s Equity: Stockholder ˇs equity consists of two basic sources: (1) Paid in Capital - investments by the stockholders (2) Retained Earnings - capital that the corporation has earned from operations Issuance (Sale) of Stock: If issued for par Cash Shares * Par value Common (or Preferred) Stock Shares * Par Value Page 1 Student Learning Assistance Center, San Antonio College, 2004 Accounting Notes Issuance (Sale) of Stock: If issued for more than par Cash Shares * Sales price Common (or Preferred) Stock Shares * Par value Paid in Capital in excess of par, Common (or Preferred) Difference If stock has no par value Cash Shares * Sales price Common Stock Shares * Sales price Note: If the stock has no par value, but does have a stated value, then the stock is recorded in the same manner as par value stock.
    [Show full text]
  • Contact Information
    Contact Information Market Participant Acquisition Premiums CalCPA November 17, 2016 1 Presenter’s ContactContact Information Information Raymond Rath, ASA, CFA Managing Director Globalview Advisors LLC 19900 MacArthur Boulevard, Suite 810 Irvine, CA 92612 949-475-2808 [email protected] 2 Overview ofContact Presentation Information 1. Introduction 2. MPAP document 3. Control premiums and lack of control adjustments 4. Selected transaction premium data 5. Concluding Remarks 6. Questions 3 Section 1: Introduction Globalview Advisors LLC 4 IntroductionContact Information • The concept of a control premium is familiar to most appraisers and many individuals (estate planning attorneys, others) that work frequently with business appraisers • Control premium development and use has been the subject of divergence in practice • Views on control premiums are changing as there is increasing recognition that premiums reflect transaction synergies and not simply the value of “control” • A draft document on Market Participant Acquisition Premiums developed by a task force in conjunction with The Appraisal Foundation provides important insights on transaction premiums 5 Key Definitions from International Glossary of Business ValuationContact Terms Information (IGBVT) • Control—the power to direct the management and policies of a business enterprise. • Control Premium—an amount or a percentage by which the pro rata value of a controlling interest exceeds the pro rata value of a noncontrolling interest in a business enterprise to reflect the power of control. 6 Key DefinitionsContact from IGBVT Information • Discount for Lack of Control—an amount or percentage deducted from the pro rata share of value of 100% of an equity interest in a business to reflect the absence of some or all of the powers of control.
    [Show full text]
  • The Process of Valuation – Placing Value on Your Business
    Article: Placing value on your business The process of valuation – Placing value on your business On a regular basis, business owners, investors and experienced bankers look for a simple way to determine business value: a rule of thumb or formula. Hoping to avoid the expense and trouble of hiring a professional valuator, a value formula common to the business type is used; thereby assuming determination of a company’s value can’t be complicated. While using a rule of thumb may be a considered alterative in developing a rough test price, it provides a weak form of market comparison for business value; relying solely on this approach poses inherent problems. However, the rule of thumb approach typically employs a multiple of cash flow (or EBITDA = Earnings Before Interest, Taxes, Depreciation and Amortization) and/or a multiple of revenues. Business valuation is the act or process of determining value of a business enterprise or ownership interest therein. Valuation of a security interest in a closely held business is a difficult process due to the lack of an active free trading market. Because of the absence of such a market, an underling notion in valuing closely held businesses is found in the investment value principle. The principle suggests the purchase of an equity interest in a closely held business should be viewed like any other investment. In essence, the “investor” not only expects to receive the initial investment back, but also receive a fair return on the investment commensurate to the risk incurred. The investment value principle can be express as a formula, illustrated as follows: Investment Value Principle Benefit Value = Risk Hodges & Hart, LLC Page 1 Certified Public Accountants Article: Placing value on your business Where, Value = the investment value of the business (present value).
    [Show full text]
  • A Roadmap to Initial Public Offerings
    A Roadmap to Initial Public Offerings 2019 The FASB Accounting Standards Codification® material is copyrighted by the Financial Accounting Foundation, 401 Merritt 7, PO Box 5116, Norwalk, CT 06856-5116, and is reproduced with permission. This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication. As used in this document, “Deloitte” means Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Tax LLP, and Deloitte Financial Advisory Services LLP, which are separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright © 2019 Deloitte Development LLC. All rights reserved. Other Publications in Deloitte’s Roadmap Series Business Combinations Business Combinations — SEC Reporting Considerations Carve-Out Transactions Consolidation — Identifying a Controlling Financial Interest Contracts on an Entity’s Own Equity
    [Show full text]
  • A Guide to Investing in High-Yield Bonds What You Should Know Before You Buy
    A guide to investing in high-yield bonds What you should know before you buy Before you make an investment decision, it is important to review your financial Are high-yield bonds situation, investment objectives, risk tolerance, time horizon, diversification appropriate for you? needs, and liquidity objectives with your financial advisor. This guide will help High-yield bonds are designed you better understand the features, risks, rewards, and costs associated with for investors who: high-yield bonds, as well as how your financial advisor and Wells Fargo Advisors • Can accept additional risks are compensated when you invest in these products. of investing in high-yield bonds in exchange for The basics of the high-yield bond market potentially higher rates of interest Bonds are debt securities issued by organizations to raise capital for various purposes. When you buy a bond, you lend your money to the entity that issues it. Want to diversify their • In return for the loan of your funds, the issuer agrees to pay you interest and assets across different ultimately to return the face value (principal) when the bond reaches maturity,* segments of the or is called, at a specified date in the future known as the “maturity date” or financial market “call date,” respectively. • Value the flexibility to choose a specific sector or We have a responsibility to consider reasonably available alternatives in making company to invest in a recommendation. We do not need to evaluate every possible alternative either within our products or outside the firm in making a recommendation. We are not Have access to information • required to offer the “best” or lowest cost product.
    [Show full text]
  • The Capital Asset Pricing Model (CAPM) of William Sharpe (1964)
    Journal of Economic Perspectives—Volume 18, Number 3—Summer 2004—Pages 25–46 The Capital Asset Pricing Model: Theory and Evidence Eugene F. Fama and Kenneth R. French he capital asset pricing model (CAPM) of William Sharpe (1964) and John Lintner (1965) marks the birth of asset pricing theory (resulting in a T Nobel Prize for Sharpe in 1990). Four decades later, the CAPM is still widely used in applications, such as estimating the cost of capital for firms and evaluating the performance of managed portfolios. It is the centerpiece of MBA investment courses. Indeed, it is often the only asset pricing model taught in these courses.1 The attraction of the CAPM is that it offers powerful and intuitively pleasing predictions about how to measure risk and the relation between expected return and risk. Unfortunately, the empirical record of the model is poor—poor enough to invalidate the way it is used in applications. The CAPM’s empirical problems may reflect theoretical failings, the result of many simplifying assumptions. But they may also be caused by difficulties in implementing valid tests of the model. For example, the CAPM says that the risk of a stock should be measured relative to a compre- hensive “market portfolio” that in principle can include not just traded financial assets, but also consumer durables, real estate and human capital. Even if we take a narrow view of the model and limit its purview to traded financial assets, is it 1 Although every asset pricing model is a capital asset pricing model, the finance profession reserves the acronym CAPM for the specific model of Sharpe (1964), Lintner (1965) and Black (1972) discussed here.
    [Show full text]
  • Crisis Municipal Bond Sales
    Municipal Bond Sales: TTheh e Light at the End of the Tunnel? FFINANCIALINANCIAL By Carol Samuels, Seattle-Northwest Securities crisis f we had written this article two weeks earlier, we would have had a very different tone and outlook, as long-term municipal interest Irates were at that time approaching six percent—rates not seen in nearly a decade, and even then, only briefly. On the other hand, we are writing this after an extremely successful sale of $50 million in General Obligation Bonds for Chemeketa Community College, where the all-in yield was at 4.95 percent. Chemeketa’s bond sale, initially scheduled for September 30, was post- poned as rates climbed as high as 5.80 percent. In the market generally, long-term rates have dropped back down by about 80 basis points, after increasing by nearly 150 basis points (1.50 percent) since September 10. The Chemeketa sale was met with exceptionally strong demand—in fact, demand for bonds well exceeded the available supply. Will this be the same story next week? Hard to say, but the municipal market does seem to be returning to some semblance of ratio- nality after several weeks of unpredictable and arguably unjustifiable gyrations. In recent weeks, the State of Oregon and the city of Portland also successfully sold bond issues. And although current interest rates are somewhat higher than would have been the case in recent months, they have been coming down steadily and are lower on a historical basis than those experienced over the past two decades. What’s going on? Clearly, the municipal market has been afflicted by some of the same conditions affecting the market generally.
    [Show full text]
  • Chapter 10 Bond Prices and Yields Questions and Problems
    CHAPTER 10 Bond Prices and Yields Interest rates go up and bond prices go down. But which bonds go up the most and which go up the least? Interest rates go down and bond prices go up. But which bonds go down the most and which go down the least? For bond portfolio managers, these are very important questions about interest rate risk. An understanding of interest rate risk rests on an understanding of the relationship between bond prices and yields In the preceding chapter on interest rates, we introduced the subject of bond yields. As we promised there, we now return to this subject and discuss bond prices and yields in some detail. We first describe how bond yields are determined and how they are interpreted. We then go on to examine what happens to bond prices as yields change. Finally, once we have a good understanding of the relation between bond prices and yields, we examine some of the fundamental tools of bond risk analysis used by fixed-income portfolio managers. 10.1 Bond Basics A bond essentially is a security that offers the investor a series of fixed interest payments during its life, along with a fixed payment of principal when it matures. So long as the bond issuer does not default, the schedule of payments does not change. When originally issued, bonds normally have maturities ranging from 2 years to 30 years, but bonds with maturities of 50 or 100 years also exist. Bonds issued with maturities of less than 10 years are usually called notes.
    [Show full text]