Basics of Finance
Short-term financial markets
The common set of standards and procedures by which audited financial statements are prepared
what is Generally Accepted Accounting Principles
The stockholders (principals) appoint the managers (agents) to act in the former's interest, so that there is a separation between ownership and management
difference between acquisition price and face value
Long-term financial markets
Cash generated from a firm's normal business activities
The possibility of conflict of interest between the stockholders and the managers of a firm
coupon rate and price appreciation
1. Maturity of >= 1 year
2. Higher risk
3. Possible illiquidity
Cash flow to creditors + Cash flow to stockholders
1. Perquisite consumption
2. Shirking
3. Project selection
4. Management resistance to takeover bids
no yield to maturity; just coupon rate
1. Short maturity (< 1 year)
2. Low risk
3. Liquid (in cash or can be quickly converted to cash)
A firm's financial statement that summarizes its sources and uses of cash over a specified period
1. CEO buys unneeded corporate jet
2. If he/she owns 1% of stock, only pays 1% of trip but gains full private benefits
what is Perquisite consumption example?
coupon for stated rate, price appreciation
a regular gathering of people for the purchase and sale of provisions, livestock, and other commodities.
Slacking at work, falsely calling in sick, etc. while gaining full private benefits
less than coupon rate, price depreciates