Essays on The Relevance of Mean-Variance Analysis for Practitioners Investing in the Equity Coursework

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The paper 'The Relevance of Mean-Variance Analysis for Practitioners Investing in the Equity" is an outstanding example of a finance and accounting coursework.   Thau, (2001,pp. 12-26) states that investors include retail and institutions or firms that want to buy or sell their securities and for this reason hold cash and security accounts with intermediaries. Equity: Equity is the financing part of an organization or firm. A firm can choose to be a sole proprietor, a partnership or a corporation. A corporation involves a larger number of owners than the other two who have separate legal entities from their businesses.

Equity markets developed from the need of entities to expand. This could be to bigger premises, or even to larger geographical regions, expanding the range of products or even for re-branding. A firm or an entity that wants to expand can get their financing from borrowing, sell shares to an individual who then becomes an owner in the firm, or seek equity from the public investors. This involves the firm going public (Markowitz, Todd & Sharpe, 2000, pp. 75-80). In doing this, the company raises the needed funds for various projects.

The equity market thus involves investors wanting a stake in various companies and selling off those they are currently holding which are either not performing well in the economy or they have lost interest in. Bonds: Thau defines a bond a basically a loan or an IOU. In normal circumstances when an investor purchases a bond, then it is quite clear from the financial perspective that the investor is actually investing the money to a larger directly for future use and this can be through a corporation or even the government (Thau, 2001,pp. 12-26).

Such big institutions raise their capital by issuing bonds for periods as short as few days to as long as 40 years. The bond has a distinguishing characteristic of the borrower(the issuer) entering into a legal agreement to compensate the investor (the bondholder) through periodic interest payments in the form of coupons, and repay the original sum (principal) in full on said date, known as the bonds maturity date. The bonds are brought to the market by an investment bank, known as the underwriter. The investment bank acts as an intermediary between the issuer and the investor.

Both parties then hire lawyers to draw up legal agreements that define their relationship, and their terms and conditions (Edwin, Martin, Stephen, & William, 2009, pp. 45-60). The legal document drawn up is referred to as the indenture, which is legally binding on the issuer for the entire period the bond is outstanding. It is the indenture that stipulates dates when coupons should be paid, and also the date of repayment of the principal. Bonds issued by the government are known as Treasury bonds; those issued by corporations are known as corporate bonds; those issued by local and state governments and are usually exempt from federal taxes are referred to as municipals or “ munis” for short.

Individuals may purchase bonds from various sources like banks, firms that specialize in debt instruments, discount brokers or from full-service brokerage firms. US Treasuries may also be bought directly from the Federal Reserve Bank.



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