Bonds   Presented by –  moulik
An introduction  <ul><li>What is bond?   </li></ul><ul><li>Debt security </li></ul><ul><li>You are lending a sum of money ...
Terminology associated with bonds: <ul><li>Principal </li></ul><ul><li>Coupon  </li></ul><ul><li>Price  </li></ul><ul><li>...
Principal  <ul><li>Repay the principal amt on maturity of bond </li></ul><ul><li>Issuer   Bondholder   </li></ul>
<ul><li>Principal amount is also referred to as,  </li></ul><ul><li>Par value </li></ul><ul><li>Face value </li></ul><ul><...
Coupon  % <ul><li>Bondholder- lending money- issuer- </li></ul><ul><li>rate of interest as a compensation. </li></ul><ul><...
Price  <ul><li>Price of the a bond is dependent upon a no.of factors;  </li></ul><ul><li>Market interest rates </li></ul><...
<ul><li>Above par value </li></ul><ul><li>Below par value </li></ul>Bond   Bond discount Par value premium
Yield  <ul><li>The yield of a bond is the rate of return received from investing in the bond, is based on the price paid f...
Maturity  <ul><li>Length of time before it expires  </li></ul><ul><li>Generally issued with maturities up to 10 yrs  </li>...
<ul><li>Normal yield curve  </li></ul>
Credit quality  <ul><li>The credit rating of a bond is important to investors as it;   </li></ul><ul><li>Provides a standa...
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 po...
Bond issuing & Investing  <ul><li>Bond issuer </li></ul><ul><li>Sovereign govt. issue bonds to cover a shortfall between t...
Bond markets-  <ul><li>Primary market –  </li></ul><ul><li>Issuer  Investor </li></ul>New bonds
Secondary market  <ul><li>Sells  Buys </li></ul><ul><li>Investor A  Broker    Investor B </li></ul>bonds bonds
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Bonds

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Bonds

  1. 1. Bonds Presented by – moulik
  2. 2. An introduction <ul><li>What is bond? </li></ul><ul><li>Debt security </li></ul><ul><li>You are lending a sum of money to the bond issuer </li></ul><ul><li>Issuer- govt., bank or corporation </li></ul><ul><li>Payment on maturity </li></ul><ul><li>Interest on periodic basis </li></ul>
  3. 3. Terminology associated with bonds: <ul><li>Principal </li></ul><ul><li>Coupon </li></ul><ul><li>Price </li></ul><ul><li>Yield </li></ul><ul><li>maturity </li></ul><ul><li>credit quality </li></ul>
  4. 4. Principal <ul><li>Repay the principal amt on maturity of bond </li></ul><ul><li>Issuer Bondholder </li></ul>
  5. 5. <ul><li>Principal amount is also referred to as, </li></ul><ul><li>Par value </li></ul><ul><li>Face value </li></ul><ul><li>Nominal value </li></ul><ul><li>Redemption value </li></ul><ul><li>Maturity value </li></ul><ul><li>Denomination of principal amts – </li></ul><ul><li>US corporate bonds – USD 1000 </li></ul><ul><li>UK govt. bonds- GBP 100 </li></ul>
  6. 6. Coupon % <ul><li>Bondholder- lending money- issuer- </li></ul><ul><li>rate of interest as a compensation. </li></ul><ul><li>Regular payment </li></ul><ul><li>Semi-annual or annual basis </li></ul><ul><li>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. </li></ul>
  7. 7. Price <ul><li>Price of the a bond is dependent upon a no.of factors; </li></ul><ul><li>Market interest rates </li></ul><ul><li>Credit quality </li></ul><ul><li>Maturity </li></ul><ul><li>Supply & demand </li></ul>
  8. 8. <ul><li>Above par value </li></ul><ul><li>Below par value </li></ul>Bond Bond discount Par value premium
  9. 9. Yield <ul><li>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. </li></ul><ul><li>current yield=Annual coupon/ Price </li></ul>Rate of return on investment price Coupon payment
  10. 10. Maturity <ul><li>Length of time before it expires </li></ul><ul><li>Generally issued with maturities up to 10 yrs </li></ul><ul><li>Less than 10 yrs are referred to as ‘notes’ </li></ul>
  11. 11. <ul><li>Normal yield curve </li></ul>
  12. 12. Credit quality <ul><li>The credit rating of a bond is important to investors as it; </li></ul><ul><li>Provides a standardised measures of relative credit quality </li></ul><ul><li>Provides an impartial view of credit quality of the issue </li></ul><ul><li>Allows the investor to compare issues of similar credit quality </li></ul>
  13. 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. 14. Bond issuing & Investing <ul><li>Bond issuer </li></ul><ul><li>Sovereign govt. issue bonds to cover a shortfall between taxation revenue and expenditure </li></ul><ul><li>Govt. agencies, municipal, & local govt. authorities issue bonds to fund their service and operations </li></ul><ul><li>IBRD, IFC </li></ul>
  15. 15. Bond markets- <ul><li>Primary market – </li></ul><ul><li>Issuer Investor </li></ul>New bonds
  16. 16. Secondary market <ul><li>Sells Buys </li></ul><ul><li>Investor A Broker Investor B </li></ul>bonds bonds

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