Debt investment involves allocating capital to entities that promise repayment with interest, offering a more secure option compared to equity investment. It encompasses instruments like corporate, government, and municipal bonds, each with varying risk levels. The text delves into the process, comparison with equity investments, corporate balance sheet impacts, and effective management and strategy development for debt investment portfolios.
Show More
Debt investment involves allocating capital to an entity in exchange for repayment of principal and interest, with various types of securities available such as corporate bonds, government bonds, municipal bonds, and structured notes
The interest income from a bond is determined by multiplying the principal amount by the interest rate and time
Debt investment is generally considered lower risk than equity investment, but it also offers lower potential returns and exposes investors to credit and interest rate risks
Equity investment involves acquiring ownership in a company and potential returns from dividends and capital gains
Capital gains are calculated by subtracting the purchase price from the selling price
Equity investment offers higher potential returns but also carries higher risks, including the possibility of total loss of invested capital
Debt investments are recorded as assets when held by a company and as liabilities when issued by a company
The carrying value of debt investments may fluctuate with market conditions or remain at amortized cost if held to maturity, with premiums or discounts recognized over time
Debt investments can improve a company's financial position and cash flows, but also expose them to credit and interest rate risks
00
Types of Debt Securities
Corporate bonds, government bonds, municipal bonds, structured notes.
01
Risk and Return Levels in Debt Instruments
Varies by instrument: Gov't bonds typically lower risk than corporate bonds.
02
Bond Interest Income Calculation
Interest Income = Principal Amount × Interest Rate × Time.
