The spread is the yield on the corporate bond minus the yield on a similar treasury bond. Bond traders don't want to memorize or figure out what an appropriate yield would be when they trade corporate bonds or different maturities and coupons. It's much easier to just say how close the corporate bond is to a similar treasury bond. The difference between the two is called the spread, and is a measure of the credit risk associated with the corporation that issued the bond.
Longer explanation with the details spelled out-The prices of bonds are determined by how much people are willing to pay for them. The reason that not everyone just goes for the bond with the highest yield is that some bonds are more risky than others. Generally this trade-off gives a direct a risk/return relationship, the more risk on the bond, the more it has to yield for people to buy it, so the cheaper it will be to buy it. All bonds are sensitive to interest rates. So if you have a treasury bond you are mainly exposed to interest rate and reinvestment risk. Treasury bonds are generally considered the safest kind of bond, so there is no credit risk. If you invest in a corporate bond that has the same type of characteristics (maturity, coupon) of a treasury bond, you can assume it has the same amount of interest rate and reinvestment risk, plus some amount (a 'spread') of credit risk.
Spreads on corporate bonds
Value of shares/stock, versus value of company.
I notice in New Zealand, if you look at our Companies Register, many companies with huge turnover, (Limited Liability) are listed as having one or two shareholders, owning say "50 Shares of $1 Each". I know the company is worth more than this because the own ferries, yachts, buses, retail premises etc. (I looked up the registration papers to be sure - the LTD company is listed as the owner). Does this mean that one 50th of the company is worth $1?
Often there will be say ... one share of $1 owned by someone, and 99 shares owned by one other person.
I guess the low value is because the maximum liability of the shareholder is limited to $50 or whatever - but who values these shares, and why do people even need share to have a limited liability company? Why not one shares of one cent? It seems that shares are only relevant when a company is publicly listed, but why are they used otherwise. I presume this is some sort of legal fiction, but what does it mean?
Not only a legal fiction, but nowadays it means even less than one might think.
How much tax does an investor pay on his stocks?
The answer will vary by country and circumstances. For example, in the U.S., in general a taxable event occurs only when you sell a stock. Capital gains taxes will be taxed depending on your tax bracket are they are not held for more than a year. Capital gains taxes for those stocks held longer than a year there is currently a cap of 15% (but that does change periodically by legislation). For dividends most individuals are taxed at 15%. Dividends for low income are taxed at 5% until December 31, 2007 where in 2008 they will become untaxed. For a holding company that owns at least 80% of outstanding voting shares tax-free dividends can be claimed.
Stock Devaluation
Some companies can oversell their stock, in which case the investor who originally bought the stock sees their investment plunge even to the being worthless. The Company itself enjoys a huge influx of Capital. See the case of Nortel (3 billion shares?).
Why don't really successful companies just get a loan to fund their big projects?
Most "really successful" companies would try to sell bonds before considering a loan for long term projects, like expansion. They are like a loan but generally at a lower rate and the business issuing the bond would be setting the terms. They would be more likely to take loans out for short term expenses.
Companies and people that own companies
How do shares work in cases where company A owns company B? Is that ownership manifested as the first one owning 50%+1 of the shares of the second? If that's the case, how does that really work and what does that mean for shareholders of the parent company?
My other question is if the owner of a company completely owns the company, what incentive do they have to NOT start selling shares? Do they get something like dividends even if the company isn't divided into shares? Do they get a share of the profits or revenue?
All of the following answers are from a U.S. frame, and I'm not a lawyer, and I might be missing some other considerations, but I believe I'm on pretty solid ground here.
One company can own any percentage of another. 50%+1 of the shares is enough to have formal control; considerably less than that will often give effective control if the rest of the stock holdings are diffuse. It's enough to let company A control effectively appoint the Board of Directors, etc. However, if there are other stockholders in company B, they have certain rights as minority stockholders: they can sue if company A manages company B against their interests, just like they could if a private individual were in company A's role.
For stockholders of company a, company B is just like any other asset of company A: a computer, a factory, a trademark, etc.
A 100% owner of a company can do damn near anything with it, limited only by employment law, contract law, etc. If there are no minority stockholders, then the owner is allowed even to do something remarkably foolish or wasteful, just like you can take a hammer to your own car without breaking the law. More realistically, assuming the company is incorporated, the owner can transfer money from the company to his/her personal account and vice versa almost at will, often with tax advantages; at a certain point though, the IRS could object to self-dealing transfers that clearly have no purpose other than tax avoidance (e.g. loans at unrealistic interest rates).
Why not sell shares? Well, there are a lot of reasons. For starters, if you think the company is going up in value why sell? Just like as an ordinary minority stockholder you don't sell shares of a company in which you have confidence. Second, going public is itself a massive hassle, usually at least a half million dollar, year-long process, not to mention requiring adherence thereafter to much stricter accounting standards, rules about with whom you may share non-public information, etc. Plus, you then have a fiduciary responsibility to your minority stockholders. For example, you may like giving 10% of profits to your favorite charity, but a minority stockholder might sue, claiming you are wasting a corporate asset.
On "why not sell": it can be either. (1) What you sell now, you cannot sell later. (2) Public ownership puts tremendous constraints on the conduct of management. Let me give you a concrete example: I used to work for a company that was very open with employees about how sales were going each month. When they went public, they had to stop this practice, because it would have been inside information that they could not share with some investors/potential investors without making it public. That is, it would have turned every employee into an "insider", subject to all of the constraints on "insider trading" etc. Also, my example above about giving profits to charity is quite real-world.
"Aren’t incorporated": I hope you understand that being incorporated is an entirely different matter than being publicly held. Being incorporated is about protecting owners from full liability in the case of lawsuits, financial failure of the business, etc. Google went public an only year ago, but had been incorporated for a long time. I can't offhand name big ones or say how common they are.
Most companies (publicly or privately owned) finance mainly out of revenue and loans, not out of selling pieces of themselves. Why sell shares rather than borrow? Mostly because when you borrow, you have to either pay back or (more commonly) periodically refinance. Also, believe me; creditors can hem you in as much as shareholders.