Capital Markets

Common stocks, bonds, and other financial instruments all are associated with capital markets. Long-term capital is provided to business organizations through the operations of capital markets. It is important and interesting to note that most people associate the capital markets with the trading of common stocks (and, indeed, most of the annual trading activity in the capital markets involve the trading of common stocks); however, most of the new long-term capital provided to business organizations through capital market operations each year results from bond activity. Corporations benefit directly (within the context of capital infusion) from common stock transactions only through new issues.

The equity market segment of a capital market is concerned with the trading of stocks in corporations or limited liability companies. Stocks represent a share in the ownership of a corporation. The bond segment of a capital market is concerned with the placement or trading of corporate debt instruments. Bonds represent a claim against the assets of the issuing corporation.

Prices for stocks, bonds, and other financial instruments traded

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ther represents the risk-free rate of interest. "Preferred investment strategies plot along the connecting line, representing alternative combinations of risk and return obtainable by combining market portfolio with borrowing or lending at the risk-free rate of interest. The connecting line is the capital market line. All investment strategies other than those combining market portfolio and the risk-free rate of interest in an optimal manner would be expected to fall below the capital market line. The capital market line develops the capital asset pricing model with respect to portfolios. The security market line develops the model with respect to specific individual securities. The final step in the development of the capital asset pricing model is the derivation of a beta coefficient to represent the risk of a security (or of a portfolio). In general, the beta value of a security measures the expected change in its excess return per each one-percent change in the excess return of the market portfolio. The CAPM requires that the underlying distribution of assets have a finite variance in order to define the risk/reward relationship of an investment vehicle. The term "emerging markets" refers to economies around the worl
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Approximate Word count = 1409
Approximate Pages = 6 (250 words per page)

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