Final answer:
A firm's perspective on bonds and bank loans is that both are ways to raise capital, but they differ in terms of liquidity, interest rates, restrictions, and resale ability. Bank loans are not freely traded and may have variable rates and strict covenants. Calculating home equity, if Eva bought a house for $200,000 and made a down payment of 10%, her initial equity would be $20,000.
Step-by-step explanation:
From a firm's point of view, a bond and a bank loan are similar in that both are methods of raising capital, which involves receiving funds that have to be repaid over time with interest. However, they differ significantly in several respects. Bonds are securities that are typically traded on the open market and can be bought and sold by investors, giving the firm access to a wider pool of potential capital. Interest payments on bonds are also regularly scheduled over the life of the bond and the interest rate is usually fixed. Bonds may sometimes include covenants, but they are generally less restrictive than the covenants that might be included in bank loan agreements.
Bank loans, conversely, are not traded and are negotiated directly between the borrower and the lender, typically a financial institution. Loans usually have more stringent covenants which the firm must adhere to, reducing the borrower's operational flexibility. The interest rates on loans can either be fixed or variable, changing over time with market rates. Importantly, loans may require a more intensive due diligence process and regular monitoring as compared to bonds.
For the calculation of equity in the home for the provided situation: if Eva put a down payment of 10% on a house that costs $200,000, it means she paid $20,000 out of pocket. The remaining $180,000 constitutes the loan taken from the bank. Therefore, Eva's initial equity in her home would be the down payment she made, which is $20,000.