BUS-X 100 Lecture Notes - Lecture 5: Interest Rate
Raising Money without Giving up Ownership! Deal with Creditors.
Discount Rate – Interest rate the Federal Resurvey loans to banks.
Prime Rate--best customers for short-term loans. (Spread…Difference between rate bank
borrows money & loans it out.)
Line of Credit-- pre-arrangement…like credit card max…can go up to without asking permission
each time…prime plus small added %. (Try never to use all)
Secured Loan-- loans backed assets of borrower…like a mortgage…if do not pay back…loaner
claims the asset as theirs...prime plus added %)
Unsecured Loan-- loans backed only by the borrower’s good reputation…previous credit
history…prime plus larger %.
Sell Bonds– company issues bonds to raise money…Sets amount, payback schedule, &
interest…buyers purchase.
Innovative Investment Options
Short Selling…investment firm pays you the market price for stocks today…you
give them a date you will repurchase the stock…market price today $25 per
share…short 1000 shares for 90 days in future…investment firm gives you $25,000
today…in 90 days market price is $20 per share…you purchase 100 shares for
$20,000…you have profit of $5,000.
Margin Trading…borrow money from an investment firm to buy stock…Example
…stock selling for $25 per share…you buy 1000 shares on a 20% margin…you
pay $5000…the investment firm loans you $20,000 and charges a fee…you own all
1000 shares & get all dividends.
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Discount rate interest rate the federal resurvey loans to banks. Prime rate--best customers for short-term loans. (spread difference between rate bank borrows money & loans it out. ) Line of credit-- pre-arrangement like credit card max can go up to without asking permission each time prime plus small added %. (try never to use all) Secured loan-- loans backed assets of borrower like a mortgage if do not pay back loaner claims the asset as theirsprime plus added %) Unsecured loan-- loans backed only by the borrower"s good reputation previous credit history prime plus larger %. Sell bonds company issues bonds to raise money sets amount, payback schedule, & interest buyers purchase. Margin trading borrow money from an investment firm to buy stock example. Stock selling for per share you buy 1000 shares on a 20% margin you pay the investment firm loans you ,000 and charges a fee you own all.
