You are on page 1of 2

introduction to Inuestment Enuiroment ¢*P¢"

For instance, a company issues a bond at an interest rate of 12 per cent.After 2 years, it finds it
can raise the same amount at 1o per cent. The company
can now exercise the call option and recall its debt obligation provided it hasdeclared so in the
offer document. Similarly, an investor can exercise his Putoption if interest rates have moved up
and there are better options available in
the market.

1. 7. 3. 6 Market Value of a Bond

Market value of a bond depends on a host of factors such as its yield atmaturity, prevailing
interest rates, and rating of the issuing'entity. Price of abond will fall if intere'st rates rise and
vice-versa. A change in the credit rating of
the issuer can lead to a change in the market price.
1. 7. 3. 7 Mode of Holding Bonds
Bonds are most commonly held in form of physical certificates. Of late, somebond issues
provide the option of holding the instrument in demat form interestpajrment may also be
automatically credited to your bank account.
1. 7. 4 Investment In Equity & Preference Shares
Stock market is an investment opportunity that can offer both high risks andhigh returns. Capital
is the money required to run a business. When a businesswishes to expand or commercialize a
new product or service, it needs to raisecapital.
Capital can be raised in 2 ways

Debt This is the borrowed capital

Equity This is the company s own capital

Equity capital represents ownership capital. Equity shareholders collectivelyown the company.
?hey bear the risk and enjoy the rewards of ownership. Thepotential rewards and the downsides
of equity shares make this an exciting,attractive and at the same time a risky proposition for

In financial markets, the stock capital or equity capital of a corporation or ajoint stock company
is the capital raised through the issuance, sale, and
distribution of shares. A person or organization that holds at least a partial shareof stock is
called a shareholder.

Types of Share Capital

The share capital or stock capital exists in 2 forms

Equlty/ordlnary Shares Equity shares or'Common stock is the most

usual and commonly held form of stock in a company. Common stock
holders typically have voting rights in corporate decision matters. In order
of priority for receipt of their investment in the event of liquidation of acorpoTation, the owners of
common stock are the last.
il) Preference Shares These have priority over common stock in the
distribution of dividends and assets. Most preferred shares do not provide
voting rights in corporate decision matters. However, some preferred
shares have, special voting hghts to approve certain extraordinary events
such as the issuance of new shares, the approval of the acquisition of the
co】JJpany, or to elect directors.