#+title: Section 8 | Lesson 44 - Debt/Bonds, Interest Rates/Yield Curves, Equity
#+HTML_HEAD: <link rel="stylesheet" type="text/css" href="../_share/media/css/business.css" />

* Links
- [[./../mba-main.org][TOC | Business]]
- [[https://www.udemy.com/course/an-entire-mba-in-1-courseaward-winning-business-school-prof/learn/lecture/4282976#overview][S08:L44 Debt/Bonds, Interest Rates/Yield Curves, Equity]]

* Notes

** late stage VC & VD round
- year 5-6
- best VC: Meritech
- best VD: Silicon Valley Bank

** Finance & Accounting differences
*** accounting
- accrued revenue and expenses

*** finance
- cash revenue and expenses
- cost of capital (cost of getting money)
- cost of equity

** Debt
- nominal interest rate = interest rate of a bank loan
- real interest rate: rate that government loans banks

- liquidity risk: how fast can one turn all his assets to cash

- cost of debt = liquidity risk + inflation risk  + defautl risk + maturity + real interet rate

- risk free rate = real rate of interest + inflation premium

** yield curve
- x axis: time
- y axis: interest

- you can plot on that curve what the interest rate is going to be longer term

** calculate inflation
- bureau of labor statistics
- bls.gov
- calculate how much stuff you bought in one year is worth at present
  - https://data.bls.gov/cgi-bin/cpicalc.pl

*** what is inflation
- to raise interest rates the gov sells bonds
  - banks buy bonds
  - bonds say the gov will buy back the bond at a rate
- this takes money out of circulation
  - money is more scarce it is worth more

- when they want to lower interest rates they buy bonds
  - this puts more money in circulation

*** most important tool of government
- if gov cant control the price of bitcoin, it has less power

*** inflation has been negative at times
- so check out the CPI Inflation calculator
- https://data.bls.gov/cgi-bin/cpicalc.pl

  an-entire-mba-in-1-courseaward-winning-business-school-prof

** basic needs to assess risks
- a mature cash rich company pays a lower debt

** underlying economic drivers
- we all really on ratings agencies
  - S&P
  - Moody's

- better the rating, lower interest on debt
  - AAA (best)
  - AA
  - A
  - BBB (investment grade)
    - anything higher than this is considered OK
    - anything lower is "junk bond" / "high yield"

*** investment grade
- anything above BBB
- Default Risk Premium (DRP) is less than 1% above US treasuries rate

*** junk bonds
- BB and below
- DRP is 5% above treasury rates

*** why this matters
- early stage companies that take loans get junk bond rates
- this is why it's better to get equity / VC financing
- low inflation leads to startups