Investment Banker

With growing competitive pressures on businesses and a trend towards globalization,

organizations engage with investment bankers to assist them and other entities in raising capital
for expansion and improvement. Investment bankers are essentially financial consultants to
businesses and, in certain circumstances, governments. Through advising on mergers and
acquisitions (M&A) and underwriting (capital raising). This might include issuing stock, issuing a
bond, negotiating the acquisition of a competitor, or arranging the sale of the firm itself.
Investment banks function as go-betweens for investors that have money to invest and
enterprises who require capital to grow and run their businesses.

An investment banker can save a client time and money by recognizing the risks connected with
a specific project before a firm moves forward. Businesses and charitable organizations
frequently seek guidance from investment bankers on how to effectively plan their growth. An
investment banker can also help with financial instrument pricing and navigating regulatory
requirements. When a company performs its initial public offering (IPO). In managing an IPO, an
investment bank is in charge of drafting a prospectus that describes the firm and the terms of
the stock offering, as well as dealing with all legal and compliance concerns with the appropriate
financial regulatory body, such as the Securities and Exchange Commission (SEC). They are
also in charge of setting the initial stock price at a level that will ideally attract sufficient
investment to obtain the financing that the company wants or needs. The investment bank must
strike a careful balance in pegging an optimal price that would give maximum finance for their
client company while also attracting the largest number of investors when determining IPO stock
pricing. If the banker prices the stock too high, you may not be able to attract enough investors;
if the price is too low, it may not be able to raise enough money.

An investment bank will act as an intermediary and buy all or a portion of the firm's shares
directly. In this situation, the investment bank will sell the business's shares into the public
market on behalf of the company going public, producing immediate liquidity. In this
circumstance, an investment bank stands to earn by pricing its shares at a premium. In doing
so, the investment bank assumes a significant level of risk. While professional analysts at the
investment bank utilize their skills to appropriately price the stock, an investment banker can
lose money on the deal if the shares are overvalued.

References: https://corporatefinanceinstitute.com/resources/careers/jobs/what-do-investment-
bankers-do/?fbclid=IwAR17_BRRagt4axRX-
iQNqlQ2OgtbThxXCzBJ0RefXQgshB_Cdt4DB5tDP74

https://www.investopedia.com/articles/personal-finance/042215/what-do-investment-bankers-
really-do.asp
What is a corporate bond?

A bond is a debt obligation. When investors purchase corporate bonds, they are effectively
lending money to the firm that is issuing the bond. In exchange, the corporation agrees to pay
interest on the principal and, in most situations, to return the principal when the bond matures or
comes due. When you purchase a share of common stock, you own equity in the company and
are entitled to any dividends declared and paid by it. But when you purchase a corporate bond,
you do not own equity in the company. No matter how profitable the firm gets or how high its
stock price rises, you will only receive the bond's interest and principle. However, if the
corporation gets into financial difficulties, it is still required by law to make timely interest and
principal payments. The company is not obligated to pay dividends to shareholders in the same
way.

Companies use bond profits for a variety of purposes, including purchasing new equipment,
investing in R&D, repurchasing their own shares, paying dividends to shareholders, refinancing
debt, and funding mergers and acquisitions. Bonds are classified according to their maturity
date, which is the day on which the corporation must repay investors their capital. Maturities can
be short (less than three years), medium (four to ten years), or long term (more than 10 years).
Longer-term bonds typically have greater interest rates, but they also come with more risks.
Bonds, as well as the firms that issue them, are categorized based on their credit rating. Credit
ratings are assigned by credit rating organizations based on their assessment of the likelihood
of a company defaulting on its bonds. Credit rating agencies assess their bond ratings on a
regular basis and may make changes if conditions or expectations change. Bonds are classified
as investment grade or non-investment grade based on their credit ratings. Investment grade
bonds are thought to be more likely to be paid on time than non-investment grade bonds. Non-
investment grade bonds, often known as high-yield or speculative bonds, have higher interest
rates to reward investors for taking on more risk.

Bond ratings are indications of a company's or government's creditworthiness. It's a letter-based

credit scoring system that's used to assess a bond's quality and creditworthiness. Credit rating
organizations produce the ratings, which assess a bond issuer's financial strength and ability to
repay the bond's principal and interest according to the terms of the contract. Private
independent rating services such as Standard & Poor's, Moody’s Investors Service, and Fitch
Ratings Inc. The higher a bond's rating, the lower the interest rate it will carry, all else equal.

What are the financial terms of a bond?

The basic financial terms of a corporate bond include its price, face value (also called par
value), maturity, coupon rate, and yield to maturity. Yield to maturity is a popular metric for
comparing bonds. This is the annual return on a bond if you hold it to maturity, accounting for
when you acquired it and how much you paid for it. A bond's face value is frequently traded at a
premium or discount to its market value. When market interest rates rise or fall in relation to the
bond's coupon rate, this can happen. For example, if the coupon rate is higher than market
interest rates, the bond will most likely trade at a premium.

Example:

Financial Term Bond A Bond B Bond C

Price (as a % of face 100 90 110

value)

Maturity 10 years 10 years 10 years

Face Value $1000 $1000 $1000

Coupon Rate 4.00% 4% 4%

Yield to maturity 4.00% 5.31% 2.84%

Bond A. Bond prices are expressed as a percentage of the face value of the bond. The price of
Bond A is $1,000, or 100 percent of the face value. The bond will pay 4% of the face value per
year, or $40. Bond A will pay $20 every six months because most bonds are paid semiannually.
In addition, at the end of the ten years, the bond will make a $1,000 principal payment. Because
it is not trading at a premium or a discount, the bond pays a 4.00 percent yield to maturity.

Bond B. Bond B costs $900, which is 90% of its face value. Regardless, Bond B investors will
get a total of $40 in coupon payments each year, and when Bond B matures, bondholders will
receive $1,000 in face value. Bond B has a 5.31 percent yield to maturity due to the discounted
price.

Bond C. At $1,100, or 110 percent of face value, this bond sells for a premium. Bond C
investors will receive a total of $40 per year in coupon payments and the bond's face value of
$1,000 at maturity, just like Bonds A and B. Bond C's yield to maturity, at 2.84 percent, is lower
than the coupon rate due to the premium price..

References:

https://www.sec.gov/files/ib_corporatebonds.pdf?
fbclid=IwAR3By1YuxXn1XnBHpA0e8spaDWQMwhawxeiY_58fKWdUHH5H_JXfcXC5N6U
Equity Financing

Equity financing occurs when a company aims to raise capital by offering investors a portion of
the company's ownership in the company. This method of financing enables the company to
raise sufficient funds without the need for loans or debt. Companies seek money for a variety of
reasons, including an urgent need to pay bills or a long-term goal that necessitates capital to
invest in their expansion. A firm effectively sells ownership in its company in exchange for cash
when it sells shares.

Equity financing comes from many sources: for example, an entrepreneur's friends and family,
investors, or an initial public offering (IPO). An initial public offering (IPO) is a procedure that
private corporations go through in order to sell shares of their company to the public in a new
stock issuance. A firm can raise funds from the general public by issuing public shares.

References: https://www.investopedia.com/terms/e/equityfinancing.asp#:~:text=Equity
%20financing%20is%20the%20process,to%20invest%20in%20their%20growth.