CAPITAL NOTE Meaning and
Definition
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A capital note refers to a type of debt security issued by a company or a government entity to raise funds for long-term financing. It is classified as a form of subordinated debt, meaning that it ranks below other senior forms of debt in the event of liquidation or bankruptcy.
Capital notes are considered hybrid securities that possess characteristics of both debt and equity instruments. They usually have a fixed maturity date and pay interest to investors, similar to traditional bonds. However, they bear similarities to preferred stock as well, as they often provide issuers with the option to defer interest payments or convert the notes into equity shares.
The primary purpose of issuing capital notes is to strengthen a company's capital structure by maintaining a balance between debt and equity financing. Moreover, these notes are commonly used by financial institutions to meet regulatory capital requirements. They provide investors with a higher yield compared to regular bonds, compensating for the subordination risk associated with them.
Investors in capital notes face the risk of default compared to more senior forms of debt. In case of bankruptcy, they are repaid after senior bondholders and other liabilities have been settled. However, capital notes can offer higher returns to compensate for this increased risk.
Overall, capital notes provide companies and government entities with a flexible financing option and investors with an opportunity to earn higher returns, while simultaneously bearing a certain level of risk.
Common Misspellings for CAPITAL NOTE
- xapital note
- vapital note
- fapital note
- dapital note
- czpital note
- cspital note
- cwpital note
- cqpital note
- caoital note
- calital note
- ca-ital note
- ca0ital note
- caputal note
- capjtal note
- capktal note
- capotal note
- cap9tal note
- cap8tal note
- capiral note
- capifal note
Etymology of CAPITAL NOTE
The term "capital note" does not have a specific etymology as it is a combination of two separate words.
1. "Capital" comes from the Latin word "capitalis", meaning "of the head" or "chief". Its original use was to refer to the head of a statue or pillar, but it later expanded to represent the principal sum of money, assets, or investments.
2. "Note" originates from the Latin word "nota", meaning a mark or sign. In this context, it refers to a written promise to pay a specific sum of money, often used in financial or legal contexts.
Therefore, the term "capital note" simply refers to a written promise to pay a principal sum of money or investment. It is commonly used in financial and banking sectors to describe a type of debt security.
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