Finance

Conflict Between Shareholders and Creditors

What kind of agency conflict between share holders and creditors may exist? Conflict between shareholders and creditors is common for the company which use debt capital to form an optimum capital structure. Agency relation exist when one party works as an agent of the principal. In an organization management works as a agent of owner or share holders. When managers…
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Agency Conflict

What is agency conflict? Agency conflict is a common problem we face in an organization, this problem arises because of difference in interest of management, owner and other related parties. An agency relationship arises whenever one or more individuals hire other individuals to perform some service and also delegate decision making authority to the agents. Here the hiring parties is…
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What is a Bond

What is a Bond? A bond is a financial instrument used by the government or corporate to collect money from the market. It provides a fixed benefit to the bond holders periodically and also at the time of maturity. Although the use of bond as a financing instrument used in developed countries and is very popular around the world, but…
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Basic Types of Risk

What are the Basic Types of Risk? We know that future is uncertain, because of uncertainty; involvement of risk can be traced to our every part of life. When we talk about any investment we have to think about risk and return, higher the risk higher the rates of return and lower the risk lower the rates of return. Our…
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Perfect Capital Market

What is meant by a perfect capital market? If a capital market has the following characteristics then it would be considered as perfect capital market. In perfect capital market case, assuming complete markets, perfect rationality of agents and under full information, the equilibrium occurs where the interest rates clear the market, with the supply of funds equal to the demand….
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Standard Deviation is Better Measurement

Why standard deviation is better measurement for risk? In finance, standard deviation is applied to the annual rate of return of an investment to measure the investment’s volatility. Standard deviation is also known as historical volatility and is used by investors as a measure for the amount of expected volatility. Basically standard deviation is used to see whether the project…
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Asymmetric Information

In financial market what is meant by asymmetric information? When a manager knows more about his or her firm’s future than do the analysts and investors who follow the company then a situation of asymmetric information exists. In this situation a firm’s managers may correctly conclude that its securities are undervalued or overvalued depending on whether the inside information is…
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Principles of Finance

Principles of Finance Principles act as a guideline for the investment and financing decision. Financial managers take operating, investment and financing decisions, some of this related with short term and some long term. Before discussing about principles of finance let’s have some idea about finance, is the process of collecting funds and ensures proper utilization of funds. Many people say…
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Individual Investor Life Cycle

Individual Investor Life Cycle Individual investor life cycle indicates the investment behavior of investor over different age of their life. Investment decision is based on the age, financial condition, future plans and risk characteristics of an individual. Investor mainly invests for getting return which can compensate the sacrifice of present for more future earnings and security. As a financial plan…
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The Portfolio Management Process

The Portfolio Management Process Before discussing the portfolio management process lets have some idea of portfolio, basically portfolio management process is the set of securities or combination of investment securities. The process of managing a group of investment or portfolio is never stop, it is a continuous process. Investor needs to develop plan and policies to form a portfolio, monitor…
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