Cash Dividends and Share Repurchases
Under the assumption of “all else being equal”, i.e. the information content and taxation for a share repurchase and cash dividend are the same, a share repurchase is considered to be equivalent to a cash dividend payment of the same…
Effect of a Share Repurchase on Book Value Per Share
Book value per share (BVPS) refers to a company’s total shareholders’ equity divided by the total number of outstanding shares. A share repurchase can impact a company’s BVPS. It is important to note what the impact of BVPS is given…
Effects of a Share Repurchase on EPS
A company may choose to carry out its share repurchase program using surplus cash that it has. Alternatively, it may choose to borrow money and use debt to finance the repurchase. Either method will impact the company’s earnings per share…
Share Repurchase Methods
Share repurchase is one of the two methods that can be employed by a company in the distribution of cash to its shareholders. Dividend payment is the other method. In a share repurchase or buyback, a company buys back its…
Dividend Payment Chronology
Dividend chronology describes the timeline for a series of events which take place after a company decides to pay dividends to its shareholders. Included in this chronology are the declaration date, ex-dividend date, record date and payment date, in that…
Monetary Transmission Mechanism
The monetary transmission mechanism is the process where general economic conditions and asset prices are affected due to the monetary policy decisions. It occurs through interest rate channels that influence the costs of borrowing, the levels of investment, and aggregate…
Implementation of Fiscal Policy
S Fiscal policy refers to all the methods used by a government to influence the economy through tax rates and government expenditures. For example, a government may decide to reduce taxes. These moves should, in theory, stimulate the economy and…
Tools of Fiscal Policy
The government possesses two major fiscal tools for influencing the economy. These tools can be divided into spending tools and revenue tools. Spending tools refer to the overall government spending. On the other hand, revenue tools refer to taxes collected…
Effective Duration-Measure of Interest Rate Risk
Another approach to assessing interest rate risk of a bond is to estimate the percentage change in price against a change in the benchmark yield curve, such as the government par curve. The effective duration is defined as the sensitivity…
Macaulay, Modified, and Effective Durations
The duration of a bond measures the sensitivity of the bond’s full price (including accrued interest) to changes in the bond’s yield-to-maturity or, more generally, changes in benchmark interest rates. Bond duration estimates changes in bond price assuming that variables…
