Name: WAYA, NISREEN AMERAH D.

Subject: BA 303 - Advanced Financial Management with MAC

Date of submission: October 14, 2020

#04

I learned that bonds are not simply a long-term debt instrument. Yes, it is but with much
more types and characteristics, based on its issuer and its valuation is as to risk and expected
return. They are not alike, and obviously does not move in the same direction. For example,
corporate bonds that issues by businesses are callable or the higher the return, the higher the
risk it corresponds. While treasury bonds that are issued by the government, though expects a
lesser return, but are not exposed to risks. Aside from the two, there are also municipal bonds,
and foreign bonds.
I also learned that bonds are paid on its face value, and it is commonly called “Par Value”.
It is the value of money in the future that the company promises to pay. It may also incur interest
rates but may also have fixed interest amount or may be zero interest. The valuation and terms
may differ in every issuing firms, there are various factors that influence bonds valuations but
generally when the economy is strong, corporate bonds generally produce higher returns than
treasury or government bonds.
Aside from the importance of par value and its rate, it is also important to name or schedule
its maturity date. It is also one of the factors that affect a bonds valuation. It is usually between 10
to 40 years range maturity date every bond. But, since a bond is also a contract, which includes
some negotiations and terms, there are also called “Call Provision” or a right to redeem bonds
before its maturity date which may have a call premium but it does not include government issued
bonds.

I just learned stocks in trading. And as they say, when we buy a share to this company,
we become a part-owner of it. After this class, indeed, it is true. But I came to learned that there
are also type of stocks. And it is what they called classified stock and founder’s stock. A stock
with voting right and without. There is also a hybrid stock called “preferred stock” which returns
are also set by contract makes it similar to bonds and valued in much the same way. However,
common stock returns are not contractual. It depends on the firm’s earnings, which in turn depend
on many random factors, making their valuation more difficult.
Stock valuation is interesting as it has different approach and models. But it is also needed
to understand its valuation when trying to figure out how and where to invest while learning the
rights and privileges of stockholders.
Furthermore, no matter the accompanied risk and return in every right owned, it is
important to know how stock values are determined in order to keenly invest in it, and understand
how investors estimate stocks’ intrinsic values to better readily prepare what to expect from the
company, and the expected rates of return should be computed right away for a clearer valuation
of money invested and expected return.
No matter how it is valued and priced, all I know is that, between borrowers and lenders,
stockholders and corporations, these terms and conditions are all for the benefit of both parties.
It is just a matter of choosing the right choice and deciding the best decision for the company and
for the owner themselves but with the help of the mediums available like the theories and formulas
of different experts in this field.
References:

Brigham, E., Houston, J. (2009) Fundamentals of Financial Management, 12th edition South-
Western, a part of Cengage Learning, Chapter 7, Bonds and Their Valuation Page 194

Brigham, E., Houston, J. (2009) Fundamentals of Financial Management, 12th edition South-
Western, a part of Cengage Learning, Chapter 9, Stocks and Their Valuation Page 269