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Tutor profile: Alexander S.

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Alexander S.
Finance Professional
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Questions

Subject: Spanish

TutorMe
Question:

Describe lo que paso en el ultimo libro que leiste. Usa por lo menos cinco verbos en el preterito.

Inactive
Alexander S.
Answer:

Acabo de leer un libro de la historia de la familia Medici en Italia durante los anos 1400-1600. La historia empezo con Cossimo di Medici, nacido en Florencia. Un hombre reservado y inteligente, Cossimo gano mucho dinero por medio de su negocio familiar del Banco Medici. Durante su vida, Cossimo era buen amigo del Papa, fue exiliado de Florencia, y tuvo muchos ninos. Uno de sus hijos, Piero, y su hijo, Lorenzo, lideraron a la gente de Florencia despues de la muerte de Cossimo.

Subject: Corporate Finance

TutorMe
Question:

Explain why the cost of equity and cost of debt changes for a company throughout its growth (inception, growth, maturity, decline).

Inactive
Alexander S.
Answer:

A company's cost of equity is largely dependent on the equity market. For an investor, the cost of equity is the expected return on other equity investments. At a company's inception, both the risk and growth potential is greatest for investors. As the company matures, both its risk and growth potential decline. The company's dividend per share also affects the cost of equity. While these factors influence its cost of equity, greater trends in equity markets determine a company's cost of equity. A company's cost of debt is determined by a debt investor's belief in the company's future ability to make interest payments. During a company's early years, risk is highest, and therefore investors are unsure if the company will be able to pay its debtholders what they are owed. Therefore, debtholders require more in return for borrowing their money, i.e. greater interest on the debt. As the company matures, investors are better able to evaluate the company's future, and if they deem the company to be more likely to be able to pay future interest payments, they will require a lower yield. This trend continues as the company reaches peak maturity. At this time, assets on the company's balance sheet can be used as collateral to entice debt investors into accepting even lower interest requirements. However, as the company starts to decline, the cost of debt increases again, as the company becomes a riskier investment.

Subject: Finance

TutorMe
Question:

Explain the role that investment banks play when underwriting a debt instrument for a corporation.

Inactive
Alexander S.
Answer:

Banks often play the role of "financial intermediaries" when acting as the underwriters for a new issue of a security. As the middleman between the corporation raising debt and the holders of this new debt, the bank must first help price the security. Many factors influence the security's price, including interest rates, the corporation's credit rating, the health of corporation's balance sheet, and more. The bank will also gauge institutional interest for the new issue by hosting a "road show," during which the bank will travel around the country in an attempt to get institutional money to commit to buy the new security. If at this point the bank believes the new issue has enough interest and the corporation can sustain this increased leverage, they will buy some (or all) of the issue from the corporation, and, in turn, sell it to institutional/other buyers, after which it can be traded on the open market.

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