Question

What is an example of a stock overreacting to news and how might you benefit from such news?

What is the difference between debt financing and equity financing?

Which is better from the perspective of the company seeking funding, debt financing or equity financing?

How are interest rates determined on business loans?

What is a balance sheet?

What is an income statement

Answer 1

Market overreactions are can establish a ideal entry points for a long term position allowing to benefit for the price drop.An example for this overreaction is panic selling due to slightly bad news.Almost every investor who know to deal in the market will have a stop loss so that you cut your losses when the share price drops.While being worried about a minimal amount of money that is lost the pros are to find the bottom of the downtrend line in order build a long term play. Debt is the borrowed fund while the equity is owner funds.Debt holders are liable to pay and they are the creditors while the equity holders are the owners of the company the risk involved in debt is less to that of equity.Debt financing is borrowing money in order to acquire an asset,financing with debt is known as financial leverage.Equity financing is increasing the owners equity of a sole propritorship. When we look at the type of business that has to be started depending on the revenue it is going to make it can be decided which is better for example if a new business is going to be started which for sure will make immediate revenue like eg. Uber then equity financing would be the best option to take up for these type of high potential startup. The rates are determined in three ways and they are i.federal Reserve,which sets the fed fund rates and affects short term ii) the second is the investor demand for us treasury notes and bonds that affects long term and fixed interest rates iii)and third is the banking industry they offer loan and mortgages that can change interest based on the business.The small business administration sets the maximum interest that banks can charge loan.The current market range varies from 4.40 to 4.67 and depending on the loan taken.The maximum interest loan is also determined on the market interest loans.