Reading review on Corporate stocks

Reading review on Corporate stocks

Corporate stock is a type of stock issue to raise money from an investor to fund their capital expenditures and future growth. According to Shiller (2012), corporate stock is a type of ownership in a legal business entity such as corporations. Corporate stock is divided into shares that either contain equity or ownership interest. The corporate share can be purchased at the regulated stock exchange or single private purchase. Professor Shiller focuses mostly on the global importance of corporations by analyzing the gross domestic product growth of various countries using the world bank data for corporate stock as traded in the worldwide stock market. For instance, the profitable stock market to invest in the world are those from countries with matures economies such as the United States stock market and European union member state due to stability of the gross domestic product.

Professor Shiller also emphasizes the concept of a corporation by discussing the importance and roles of the board of directors, shareholders, and chief executive officer. According to Shiller (2012), the structure of a corporation plays an integral role in the success or failures of the corporation since they are responsible for corporate strategic planning and decision making both in profit and non-profit corporations. Professor Shiller then discusses the various method of equity financing for corporate organizations. He emphasizes more of the difference between common stock and preferred stock method of financing corporations. Other approaches discussed include dividends, dilution, market capitalization, and share repurchase.

Professor Shiller clarifies the need for corporate organizations to invest in shares issued to raise capital in the modern economy. Company should make informed cooperate decision on where to invest their money for the future growth of the company and to protects shareholder wealth. Lastly, the professor discusses of balance sheet in making the corporate decision. He compares the two well know the organization that is Microsoft and Xerox balance. By evaluating the company balance sheet both on assets and liabilities can be used to make an informed decision on either to invest in the company shares in the stock market.

Theory of Debt

The professor Shiller starts by discussing the determinant of the interest rate in debt investment experienced both by the issuer and the borrower. The reason why the interest rates on debt are always positive and keep on increasing every year can be explained in the theories of interest. The concept of interest has three perceptive as to why interest rates in debt are always positive (Shiller, 2012). First is the technical progress experience in the world due to improved technology increasing economic production. Second is the advantages of roundabouts that entail the best use of the money to invest in a profitable project in the future. Lastly is time preference where most of the people prefer the present over the future.

According to Shiller (2012), the efficient way to evaluate the debt interest rate is the use of Irving fisher’s model approach that has two techniques toward interest rate. The first approach is evaluating the interest rate as the equilibriums variable in the saving market. The second approach focuses on studying the fundamental issues in economics that may affect the value of interest rate using the simple Robinson Crusoe perspectives toward economics.

Professor Shiller also focuses on the various discount that affects the interest rate of debt. They include present discount values, pricing of coupon bonds, and compounding interest rate that affect the future values of the mortgage. He evaluates the relationship between interest rate and multiple maturities rate of the debt. Using the expectations theory that assesses the current long-term interest rate to predict the future short-term interest rate on the mortgage leads to the evaluation of forwards rates. According to Shiller (2012), for one to invest in debt must evaluate the future yield on the investment or bond to ensure the profitability of the investment.

Lastly, the video focuses on the evolution of interest rates and the unethical debt investment that only enriched the lender due to abusive interest rates. Professor Shiller offers a historical overview of interest rate and loan practice to the present today (Shiller, 2012). Unethical loan practices and the interest rates on debt investment lead to the establishment of a consumer financial protection bureau to review the interest rate enacted on debt investment.

What is a Hedge Fund?

The hedge fund is one of the complicated investments in the financial market, which offer alternative financing using pooling fund and different strategies to earn an active return. According to Bennett (2012), the hedge fund has a unique characteristic that is different from other stock market investments. First, they tend to be secretive, privately owned, and privately managed. It enables investors to come up with a performance strategy to increase their return. They are secretive since if other investors in the market know how they are making money, they will use the same investment method, and the uniqueness of the hedge fund making the huge return will be lost.

Secondly, there is little or no regulatory oversight of the hedge fund market. Investors in a hedge fund are not required by the law to register with the United States securities or exchange commission or any other regulatory body in the investment business. However, some investment company chooses to register their investment business to give investors peace of mind even if they are not obligated to commit their fund or involved in insider trading (Bennett, 2012). Thirdly they can be very illiquid since investments company limits how often investor can take their money out. Fourthly they have wider investment since they can invest in derivatives and leverage of any investment. For example, they can use derivatives in any way while other investments, such as mutual funds, will not be able.

Lastly, they charge high for manager performance where hedge fund manager receives a bonus of effort they make to ensure high profitability of the investment. For example, most hedge funds are rated as under the two and twenty arrangement which mean hedge fund manager receives two percent of the annual asset fund and a bonus of twenty percent of the yearly profit of the asset. According to Bennett (2012), an investor in a hedge fund uses four strategies to ensure a massive return on their investment. They include long and short-term strategy, macro strategy, event-driven strategy, and reactive values strategy.