Jerome E. Hass

An Analytical Model of Bond Risk Differentials

There is broad consensus that three types of risk confront the potential bond purchaser: the risk of default (possible interest and/or principal loss), the risk of interest rate changes (possible principal loss or gain if the bonds are sold before maturity), and price level risk (loss of purchasing power). The analysis in this paper is directed toward the first of these risks, the risk of default. By assuming that investors require interest rate adjustments on debt subject to default sufficient to give them an expected present value equal to the present value associated with the investment of their funds in default-free securities, we examine the process that determines the risk-adjusted equilibrium interest rate and the factors affecting that rate. We also examine the implications of the model for the cost of debt and a firms debt capacity.

An introduction to managerial finance

 General Areas of Finance o Financial Markets and Institutions—the financial marketplace and the relationships of banking, insurance, estate planning, and so forth. o Investments—evaluating financial assets, such as stocks and bonds, and determining which investments to include in a portfolio of financial assets. o Financial Services—service organizations and mechanisms related to the management of money. o Managerial Finance—often called corporate finance, includes decisions regarding types of real investments (i.e., plant and equipment) that should be made and how such investments should be financed (i.e., stocks or bonds), whether dividends should be paid, and so forth.

Dollar-Cost Averaging

There are many proponents of dollar-cost averaging. And there are times to benefit from dollar-cost averaging and times it would be better not to use it. The authors present some guidelines for selecting the option of dollar-cost averaging.

Explaining Earnings Per Share Growth

The authors examine the fundamental factors that determine earnings growth, including the role of share repurchase, and offer a simple method of calculating the expected long-term growth rate of earnings per share. Many factors can affect the sequence of earnings, and the ability to formulate earnings growth models helps analysts isolate the direct factors that are likely to impact future earnings and earnings growth. If the forecast of the growth rate of earnings per share with share repurchase is 0.15 and without share repurchase is 0.10, the analyst knows that 0.05 of the 0.15 growth rate results from the share repurchase. The actual growth rate may, in fact, be different, in which case the analyst can recomputed the actual growth rates with and without the share repurchase.