Term structure of interest rates

CPA-Financial-Management-Section-3 Revision kit

Term structure or interest rate
Describes the relationship between interest rate and term (maturity period) of debt instruments. Generally, the longer the maturities, the higher the interest rates and vice verse.

(ii) Script dividends
This is the same as bonus issue where a firm issues new free shares (each valued at par) from it‟s retained earnings instead of paying cash dividends.

(iii) Share split – involves splitting existing shares into many smaller shares of lower par value.
E.g. – 10m shares @ Shs. 20 par split into 20m shares @ Shs. 10  par.
– 50m shares @ Shs. 10 par split into 200m shares @ Shs. 2.50 par.

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