ABSTRACT
In previous chapters we established that investors require a return to compensate them for the risk they are taking by making an investment in a company’s securities. That return can come from a running yield on their investment, or through a capital gain on the sale of the investment. In this chapter we examine these three building blocks of value – risk, yield, and capital gain – and see how they can be used to build a variety of fi nancial instruments. We show how black and white distinctions between ‘ debt ’ and ‘ equity ’ become blurred as different instruments are designed.
