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Bonds

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Transcript

  • 1. Bonds Presented by – moulik
  • 2. An introduction
    • What is bond?
    • Debt security
    • You are lending a sum of money to the bond issuer
    • Issuer- govt., bank or corporation
    • Payment on maturity
    • Interest on periodic basis
  • 3. Terminology associated with bonds:
    • Principal
    • Coupon
    • Price
    • Yield
    • maturity
    • credit quality
  • 4. Principal
    • Repay the principal amt on maturity of bond
    • Issuer Bondholder
  • 5.
    • Principal amount is also referred to as,
    • Par value
    • Face value
    • Nominal value
    • Redemption value
    • Maturity value
    • Denomination of principal amts –
    • US corporate bonds – USD 1000
    • UK govt. bonds- GBP 100
  • 6. Coupon %
    • Bondholder- lending money- issuer-
    • rate of interest as a compensation.
    • Regular payment
    • Semi-annual or annual basis
    • For eg; a bond with a face value of USD 1000 & a semi-annual coupon of 6%p.a will pay interest of $30 every 6 months to the bondholder.
  • 7. Price
    • Price of the a bond is dependent upon a no.of factors;
    • Market interest rates
    • Credit quality
    • Maturity
    • Supply & demand
  • 8.
    • Above par value
    • Below par value
    Bond Bond discount Par value premium
  • 9. Yield
    • The yield of a bond is the rate of return received from investing in the bond, is based on the price paid for the bond and the coupon payment.
    • current yield=Annual coupon/ Price
    Rate of return on investment price Coupon payment
  • 10. Maturity
    • Length of time before it expires
    • Generally issued with maturities up to 10 yrs
    • Less than 10 yrs are referred to as ‘notes’
  • 11.
    • Normal yield curve
  • 12. Credit quality
    • The credit rating of a bond is important to investors as it;
    • Provides a standardised measures of relative credit quality
    • Provides an impartial view of credit quality of the issue
    • Allows the investor to compare issues of similar credit quality
  • 13. D D C in default bankruptcy petition filed C C C no interest in being paid or CC CC Ca most speculative CCC CCC Caa poor quality (may default) B B B lower grade (speculative) (some what speculative) BB BB Ba lower mediam grade BBB BBB Baa medium grade A A A upper mediam grade(strong) AA AA Aa highest quality (very strong) AAA AAA Aaa highest quality standard & Poor's Fitch IBCA credit risk Moody's credit rating
  • 14. Bond issuing & Investing
    • Bond issuer
    • Sovereign govt. issue bonds to cover a shortfall between taxation revenue and expenditure
    • Govt. agencies, municipal, & local govt. authorities issue bonds to fund their service and operations
    • IBRD, IFC
  • 15. Bond markets-
    • Primary market –
    • Issuer Investor
    New bonds
  • 16. Secondary market
    • Sells Buys
    • Investor A Broker Investor B
    bonds bonds