Discussion Assignment Unit 4 finanaical management

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Nov 24, 2024

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Discussion Assignment Unit 4 Financial Management Task In the discussion forum, you are expected to participate often and engage in deep levels of discourse. Please post your initial response as early as possible and continue to participate throughout the unit. You are required to post an initial response to the question/issue presented in the Forum and then respond to at least 3 of your classmates’ initial posts. You should also respond to anyone who has responded to you. Your Discussion should be a minimum of 250 words in length and not more than 450 words. Please include a word count. Following the APA standard, use references and in- text citations for the textbook and any other sources. For this week's discussion:  Explain corporate bond interest in terms of cost of capital versus investor yields. Also, explain the municipal bond interest in terms of investor yields. Response This week reading was quite interesting as I was able to learn about corporate bond. A bond is defined as a commitment security and one of the specific types of it, the corporate bonds issued by establishments and or organization, pay annual interest, and repay the principal on specified maturity date. ( 2023, April 6). Equally yield and interest rates are prominent terms for any investor to understand, the entailed rate of return on the bond is the market rate of interest for that bond. This is the reduction rate applied to determine the union's amongst cash flows' present value. The "revenue" or "going rate of interest" is another name that it may be known for (Brigham & Ehrhardt, 2013). Moreover, the demanded return to construct a capital budgeting project, such as developing a new factory, worthy or valuable is known as the cost of capital. In accounting and to be more precise, finance and investing, the expected or needed rate of return (RRR) and cost of capital are essential vital systems of measurement. These metrics, which contrast in bounds, evaluation, and relevance, may tend to have a substantial effect or influence on incorporated and individual shareholders' investment decisions ( Dauderis, H., Annand, D., & Jensen, T. (2021A).

Further, the required rate of return and cost of capital for a given investment should move in the same direction. The cost of the capital metric is consumed by enterprises to conclude whether or not if a project is useful or sensible. Therefore, the metric is applied by shareholders to conclude whether an investment is worth the risk versus the return. Consequently, when the expected rate of return matches the cost of capital, a positive development is generated. Corporations are concerned about their capital costs. A business must determine not only how much money it requires, but also how it will attain or acquire it ( Jonick, C. (2017). Liable on the characteristics of the issuing company and the terms of the specific bond, different corporate bonds have different levels of default risk. Credit risk is another term for default risk, and the higher the credit risk, the higher the interest rate the issuer must pay ( Brigham & Ehrhardt, 2013) . Also, explain the municipal bond interest in terms of investor yields As it relates to municipal bond interest, which is also known as "munis." Municipal bonds, like corporate bonds, are expose to defaulting risk. Nevertheless, munis have one major advantage:  most municipal bond interest is tax-free, both federally and state-wise, if the holder is a resident of the issuing state. As a result, municipal bonds have significantly lower interest rates than corporate bonds with the same default risk. (Brigham & Ehrhardt, 2013). Further, Munis are quite riskier than bonds issued by the federal government. Since shareholders are not allowed to pay state or local income tax on the revenue earned from municipal bonds, which are typically lower and are required a rate of return than many corporate bonds. Municipal bond interest is commonly tax-free, which makes it the most appealing investment choice for folks in high tax brackets. Similarly, when there is a drop in the interest rates, an issuer usually calls an oath and new edition municipal bonds at a lower rate. When a bond is called, investors lose interest payments and must reinvest in a lower-yielding bond (Chen, 2020). Reference: Dauderis, H., Annand, D., & Jensen, T. (2021A). Introduction to financial Accounting. Lyryx Learning Inc. Licensed under Creative Commons BY-NC-SA 3.0. https://lyryx.com/introduction- financial-accounting/ Jonick, C. (2017). Principles of financial accounting. University of North Georgia Press. Licensed under Creative Commons by-nc-sa 3.0. Lyryx Learning Inc. Download the Principles of Financial Accounting [PDF]