Bond Ratings and Valuation

Notes On Bond And Bond Rating
Introduction to bond and bond ratings A bond is a form of debt in which you loan your money to a
company, city, or government and in return they agree to return the money to you after an agreed
upon time, with payments of interest to you while they hold your money (Wall Street Journal, 2015).
There are many different kinds of bonds, and they are sold to fund various different projects. Bonds
are seen as a safe investment and also offer investors a steady stream of income from the interest
payments. Although this may be the case for some bonds, it isn't the case for all bonds that are
issued. This is where the bond ratings system comes into play. Bond rating is a system used to
provide investors with an idea of the risk they are taking ... Show more content on Helpwriting.net
...
The ratings for bonds are provided by three major rating agencies: Standard & Poor's Corporation,
Moody's Investors Services and Fitch's Investor Services (Brigham & Houston). Each use
quantitative and qualitative information to ensure that an accurate rating has been provided to
investors.
Factors that determine bond ratings When a rating agency examines a firm's bonds, they must look
at various different factors that will help to paint a much larger picture of the financial health of the
firm. An agency will use quantitative factors to look at the history of the firm and while using
qualitative factors to look to the future stability of a firm and its ability to follow through on its
contractual obligations to bond holders (Brigham & Houston, 2013) The quantitative factors an
analyst would use include ratios that evaluate the company's ability to payout what's owed to
bondholders. These ratios include the total debt to total capital ratio, which verifies the amount of
capital provided by debt holders, and the times–interest–earned ratio, which evaluates a company's
ability to pay out interest owed to bondholders (Brigham & Houston, 2013). This information can
then be used to help create forecasted financial statements, which shed light on the ability to not
only meet current liabilities, but to continue to meet them for years to come. The qualitative factors
are based on the quality of the firm, the product, and the leadership. This can include
... Get more on HelpWriting.net ...

Advantages And Disadvantages Of Bonds
Bonds act as an investment instrument which the investors invest their money to the bonds and
bonds can provide a means of preserving capital and earning a predictable return. While many
investments provide some form of income, bonds tend to provide the highest and most reliable
source of income. Even at the time of low interest rates, there are still plenty of options (such as
high–yield bonds and emerging market bonds), investors can use it to construct a portfolio that will
meet their income needs. The most important thing is diversified bond portfolio can provide decent
yields with lower volatility than equities and higher income than money market funds or bank
instruments. Thus, for those who need to live off of their investment income bond is a popular
choice. In Malaysia, the only party can trade the bonds is financial institutions but not individuals.
There are some types of investors in Malaysia who is pension fund, insurance company and asset
management institutions. Under pension fund, the largest provident fund is ... Show more content on
Helpwriting.net ...
The first way is auction. Bank Negara Malaysia (BNM) undertakes the auction for government
bonds and the Principal Dealers undertake it for BNM notes. (Team, 2012) Both are undertake the
competitive auction. In competitive auction, each bidder is limited to 35% of the offering amount
and a bidder can specify the rate, yield, or discount margin. After making announcement, the banks
will submit a certain amount of bids and the bonds are allocated according to the level of demand.
The level of bids will determine the rates. According to the lowest yields offered, the successful
bidders are determined and coupon rate is fixed at the weighted average yield of successful bids.
(Team, 2012) Moreover, the second way is direct placement or tender. The issuers just sell the bond
to the investors directly. The tender bond which also known as bid bond act as an assurance or
security to the

Essay on Accounting: Interest and Bond
Part 3
Valuation of Securities
Chapters in this Part
Chapter 6
Interest Rates and Bond Valuation
Chapter 7
Stock Valuation
Integrative Case 3: Encore International
© 2012 Pearson Education, Inc. Publishing as Prentice Hall
Chapter 6
Interest Rates and Bond Valuation

Instructor's Resources
Overview
This chapter begins with a thorough discussion of interest rates, yield curves, and their relationship
to required returns. Features of the major types of bond issues are presented along with their legal
issues, risk characteristics, and indenture convents. The chapter then introduces students to the
important concept of valuation and demonstrates the impact of cash flows, timing, and risk on value.
It explains ... Show more content on Helpwriting.net ...
We are informed that $383 billion is the 2009 interest expense and that the national debt was about
$12 trillion in 2009 (i.e., $13 trillion less more than $1 trillion accrued in 2009). Division of the
interest payment by the total debt results in an interest rate of
3.19 percent (i.e., $383 billion ÷ $12 trillion). Assuming the Treasuries are priced at par, one ends up
with $31.90 per thousand being the annual payment needed to result in Treasuries being priced at
par.
If interest rates rise by 1% to 4.19 percent, the price of the federal debt would fall to $955.71, as
computed below.

N = 5, I = 4.19, PMT = 31.9, and FV = $1,000
Solve for PV = $955.71
The drop in Treasury values would be about 4.4 percent. This would decrease the size of the federal
debt by $572 billion (0.044 × $13 trillion). Hence, if one considers the size of the current federal
budget deficit in isolation, there is an incentive for the government to pursue policies which will
lead to higher inflation. However, higher prices will lead to higher future costs for goods and
services purchased by the government and an increase in the cost of entitlements, making proper use
of interest rates to properly manage the federal budget difficult, complicated, and, alas, political.

Answers to Review Questions
1. The real rate of interest is the rate that creates an equilibrium between the supply of savings and
demand for investment funds. The nominal

Advantages And Disadvantages Of Sukuk Bonds
Presently, the East Cameron has business partner relationship with the Macquarie Bank, such that
the latter owns 50% equities of the East Cameron. However, Macquarie soon intends to withdraw its
investment in the business, initiating Campbell Evans (CEO of East Cameron Partners LP) to look
for other alternative options to regain full control of the business. With high demands and increasing
prices of oil and gas, Evans wants to take these advantages in gaining finances to buy out Macquarie
and diversify its investment portfolio (Sapp, 2010, p. 1). The proposed sukuk bonds compels high
interests on the part of East Cameron, being that it can be a solution for the company to reverse the
financial conditions that previously characterize their investment relations with Macquarie. Under
this term, the equity rights are gradually repurchased by the East Cameron upon ... Show more
content on Helpwriting.net ...
Advantages Disadvantages
1 Enough finances to buy Macquarie's 50% equity in the company and procure high returns from
"bond–like instruments" (Sapp, 2010, p. 2). In this way, the current relationship of East Cameron
with Macquarie can be reversed by being able to buy Macquarie's 50% equity stakes. Moreover,
adequate finances can be secured that can enable East Cameron to engage with further exploration
of the two oil/ gas properties (Sapp, 2010, p. 6). A new kind of financial investment in the North
American markets (Sapp, 2010, p. 4)
2 High returns from booming prices of gas and oil market and acquire higher level of control on the
company (Sapp, 2010, p. 3) Smaller cash outflows to investors at an estimated rate of 11.25% (Sapp,
2010, p. 5)
3 No concept or application of interest rates, because interest or riba (in Arabic / Islam) is against
the Shariah law (Sapp, 2010, p. 3) Based on the traditional practices and concepts of financing
(Sapp, 2010, p.

Bond Note On Bond And Bond
After completing the table of bond valuations I noticed some definite trends. Consider the AAA
rated bond I chose in my valuation, yielding a 3.13% to maturity. As the remaining two bonds are
BB and CCC, both have noticeably high yield to maturity percentages. In my observation, As the
bond credit rating decreases, the yield to maturity percentage increases. The higher the yield, the
more likely it is that the firm issuing the bond is not of high quality.(High/low yield bonds, 2006)
Coupon rate and the yield to maturity determine trade at a discount, premium, par.
Pertaining to the bonds in my valuation, the coupon rates and yield to maturity is established in such
a way to influence bond perception. Premium sale of bonds are due to the coupon rate being
established above the prevailing interest rate. Investors bid up the price in order to receive the
benefit of a higher coupon rate. In a result, as the coupon rate attracts investors they are more
willing to pay a "premium" for the bond. Once the bond matures, the investor will have received the
stated coupon rate, but because of the increased initial payment for the bond the yield to maturity is
lower over the life of the bond (Premium bond, 2003).
Yield to maturity, market value of the bonds if the time to maturity was increased decreased by 5
years?
As a bonds time to maturity increases, so does its yield to maturity. This is due to the issuer having
the obligation to pay its coupon rates for an extended period of time.

Notes On Bonds And Debt Investment
Bonds are financial instruments that are used as debt investment. Bonds are a means for an investor
to lend or loan money to an entity or organisation or the government. Time of maturity is usually
predetermined (Bodie, Zvi, Kane, and Alan 12). The interest rate for this transaction however might
or might not be fixed or be variable, otherwise known as the spot rate. The bonds are very powerful
instruments in the market nowadays. T–bills, which are government issued are instruments that are
used to show the performance of the market, since the interest rate attracted by this instruments is
the risk free interest rate. The higher this interest rate is, the higher the rate of return for the investor
in this market. For this project, five bonds have been selected to serve as the drivers of the bonds
investments section. In this selection, diversification has been applied both in industry and
geographical positioning of the markets so as to achieve as optimal as possible. The volatility in
price and the volatility in the currency exchange rate of the various markets and financial
instruments have also been considered. Highly performing instruments were selected and have been
considered for this project. This include, the US Treasury bond, Municipal bond (US), Cooperate
bond (US), Fortress bond (UK) and the Turkey treasury bond.
Inflation is a factor that is very highly considered in terms of investments and long term financial
commitments such

Bond and Percent
Week 3 Time Value of Money and Valuing Bonds
Chapter 6
55. Amortization with Equal Payments Prepare an amortization schedule for a five–year loan of
$36,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. How
much interest is paid in the third year?
Answer: $2,108.52
56. Amortization with Equal Principal Payments Rework Problem 55 assuming that the loan
agreement calls for a principal reduction of $7,200 every year instead of equal annual payments.
Answer: $1,944.00
57. Calculating Annuity Values Bilbo Baggins wants to save money to meet three objectives. First,
he would like to be able to retire 30 years from now with retirement income of $20,000 per month
for 20 years, with the first payment ... Show more content on Helpwriting.net ...
The mortgage has an 8.5 percent APR, and it calls for monthly payments over the next 30 years.
However, the loan has an eight–year balloon payment, meaning that the loan must be paid off then.
How big will the balloon payment be?
Answer: $412,701.01
71. Break–Even Investment Returns Your financial planner offers you two different investment
plans. Plan X is a $15,000 annual perpetuity. Plan Y is a 10–year, $20,000 annual annuity. Both
plans will make their first payment one year from today. At what discount rate would you be
indifferent between these two plans?
Answer: 14.87%
72. Perpetual Cash Flows What is the value of an investment that pays $7,500 every other year
forever, if the first payment occurs one year from today and the discount rate is 11 percent
compounded daily?
Answer: $34,027.40
74. Calculating Growing Annuities You have 30 years left until retirement and want to retire with $1
million. Your salary is paid annually, and you will receive $55,000 at the end of the current year.
Your salary will increase at 3 percent per year, and you can earn a 10 percent return on the money
you invest. If you save a constant percentage of your salary, what percentage of your salary must
you save each year?
Answer: 8.47%
Chapter 7
17. Interest Rate Risk Bond J is a 4 percent coupon bond. Bond K is a 12 percent coupon bond. Both

bonds have eight years to maturity, make semiannual payments, and have a YTM of 7 percent. If
interest rates

Vanilla Stocks and Bonds
Phase 5 IP Vanilla Stocks and Bonds
Part 1 Bonds
It has been established that it is crucial to be able to properly value a bond for finance. Two
companies have been chosen to represent this action for this document Apple Inc. as well as IBM
which are both in the technology sector and have long term debt, have bonds and also stocks
available for sale. We are going to determine the length until maturity, the yield to maturity and then
also the price of the bond today. While keeping this information in mind we can determine what
time value of money illustrates about each bond. A credit rating has been assigned to each company
and we can determine which company may be the better investment for the bank as well as the
investor. In the ... Show more content on Helpwriting.net ...
Apple currently has 16,958 million dollars of long term debt according to the U.S. Security and
Exchange Commission (2013).
Next we have International Business Machines (IBM) which is one of the largest computer
manufacturers in the world developing mainframes personal and business computers and helped to
ignite the computer revolution. Again using Morningstar (2013) it was discovered that IBM had a 3
stars and a rating of AA–. According to the U.S. Security and Exchange Commission (2013) IBM
has a long term debt of $26,292 million. Morningstar revealed that their debt ratio is 65.8% which is
extremely high. The bond that was chosen to evaluate was thhe Intl Busn Machs 4.0% which also
has a maturity date of 30 years. The accrual start date is June 20, 2012 and has the first payment date
of December 20 2012 which a conclusion can be made that it has semiannual coupon frequency.
Let us look at some more information in a chart as it may be easier to understand.
So if we start to compare the separate bonds that are presented by these two powerhouse companies
we can see that they both have a maturity date of 30 years for a face value of $1,000 and the coupon
type is fixed. The coupon rate is less than the current interest rate which means a buyer may want to
pay less for that bond. However there are some differences such as the issue size of the two bonds.
Apple

Investing Stocks and Bonds
Investing in Stocks and Bonds Stocks and Bonds are different in many ways. A stock is a portion or
share of the ownership of a corporation. A share will give the owner of the stock the company's
profits or loses over time. The good thing about stocks is they can be sold at almost any time as long
as there is someone willing to buy. A bond, on the other hand, is a fixed interest financial asset
issued by governments, companies, banks, and other large entities. Bonds also are called funds.
Bonds pay the owner a fixed amount a specific date, or on specified dates depending on the type of
bond. If the bond is a discount bond, then there is one pay date at the end. If the bond is a coupon
bond, then it pays a fixed amount over a ... Show more content on Helpwriting.net ...
I tried Chevron Corporation because they seemed reliable compared to other oil and gas companies
(Chevron). Chevron Corporation has been known to strive beyond expectations, and care for the
safety of the workforce and environment (Chevron). Chevron products are recognized for their
quality, performance, and technology around the world (Chevron). I decided to be on the safe side
and only invest 1,000 dollars in Chevron Corporation because of the risk factor that comes into play
with the oil and gas industry. Chevron Corporation actually did well after all. The share prices were
high to start with. Chevron Corporation had one stock split within the ten years. In September of
2004, the 2:1 split helped my number of shares go from about 48 shares to around 97 shares total. In
the end I owned a total of approximately 180 shares. These shares sold for a big $105.38 each. This
nearly doubled the 10,000 dollars. The total after the ten years in Chevron Corporation was
$18,982.67. The one mutual fund I invested in was with PIMCO. This global investment authority
offers many different bonds such as: absolute return bonds, asset allocations, convertibles, municipal
bonds, core bonds, etc. (PIMCO). The bond I chose was a core bond. This bond was the PIMCO
Total Return Fund. This particular fund focuses on a solid core fixed–income (PIMCO). The fund
will typically invest in a diversified portfolio of

Essay on Covered Bonds
With liquidly rationing, (credit crunch) does offering covered bonds hold the answer or does it just
offer banks the opportunity to increase their margin?. Discuss critically.
Introduction
In the modern day world, with technology and global markets expanding, the need for credit is a
constant issue for economies to monitor. Liquidity rationing has been most relevant since the GFC,
when the credit market essentially froze, sending financial markets in turmoil. Therefore finding
ways to increase liquidity at a time when markets are volatile requires instruments of low risk.
Covered bonds have recently gained momentum as a popular tool for banks to increase their
liquidity whilst taking on very limited risk.
Theory
A Credit Crunch also ... Show more content on Helpwriting.net ...
Prior to the intensification of the financial crisis in October 2008, covered bonds were a key source
of funding for euro area banks. The market had grown to over €2.4 trillion by the end of 2008,
compared with about €1.5 trillion in 2003 (ECBC, 2009). The lack of credit risk transfer with
covered bonds is an important distinction with this asset class compared with, for example, asset–
backed securities (ABS) and other securities that were subject to securitization. This may well
explain the resilience of the covered bond market at the initial stage of the crisis in August 2007.
(Biswas, 2010) Investors' affinity for covered bonds can be explained by their relative safety
compared with any non–securitized asset class. In relation to covered bonds, a pool of collateral
backs the credit risk of the issuer, which is usually of high quality. Despite this, however, the
covered bond market was not totally immune to the effects of the crisis. Up to the intensification of
the crisis following the collapse of Lehman Brothers in mid–September 2008, it was clear that the
covered bond market had outperformed other wholesale funding instruments. The widening of
spreads was much less substantial for covered bonds than other ABS and unsecured debt. (Biswas,
2010) Graph 1 backs up this argument that the widening of spreads was less significant for covered
bonds as

Vietnam Bond Market
Introduction
In recent years, the issue of efficiently mobilizing capital has become the concern of all companies.
There are some ways of doing this: borrowing from the banks, issuing stocks or issuing bonds.
However, when the interest rate of borrowing from banks is very high due to high inflation, together
with the stock market is quite instable; calling for capital from bond market is much more preferred
by investors.
In the context of this report, some major points regarding the bond market in Vietnam are presented.
Firstly, a common picture about the Vietnam bond market is drawn. Next come the types of bonds
and major participants in this market. Finally, several ways by which bonds are issued are described
in details.
I/ ... Show more content on Helpwriting.net ...
However, Vietnamese individual investors still prove to be unprofessional for some reasons: Main
source of capital usually coming from banks, lack of reliable information about the market,
limitation in accurate evaluation of the value of bonds and the bond issuing organizations.
Therefore, they have tendency to invest following the majority: sell immediately when prices of
securities decrease and buy right away when prices increase. This will lead to the high fluctuation of
the market, so easily results in the losses suffering of many investors.
2. Fund managers
Fund management is the professional management of various securities (shares, bonds etc.) to meet
specified investment goals for the benefit of the investors. Fund management companies play an
important part in the development of securities market. Since the establishment of VietFund
Management, the first fund management company in Vietnam in 2003, until now, 38 fund managers
have been granted operation licenses by SSC. Among them, FPT Fund Management Joint Stock
Company has the highest chartered capital with 110 billion VND and Lotus IMC has lowest charter
capital with 5 billion VND.
3. Brokers
Broker has recently occupied the position of the hottest career for youngsters, although it is still new
in Vietnam. The term "broker" is used to indicate a qualified and regulated professional who buys
and sells all kinds of securities through market makers or

Introduction of Malaysia Bond Market
INTRODUCTION
1.1 WHAT IS BOND?
In finance, a bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt
security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is
obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the
maturity. Interest is usually payable at fixed intervals (semi–annual, annual, and sometimes
monthly). Very often the bond is negotiable, i.e. the ownership of the instrument can be transferred
in the secondary market.
Thus a bond is a form of loan or IOU: the holder of the bond is the lender (creditor), the issuer of the
bond is the borrower (debtor), and the coupon is the interest. Bonds provide the ... Show more
More importantly, Malaysia, among the key Islamic financial centres, offers a wide variety of
Islamic bonds that are based on Shariah compliant concept. As at end–Dec 2010, Islamic bonds
accounted for 39% of total bond outstanding.
1.3 BOND MARKET DEVELOPMENT IN MALAYSIA * With the shift in public policy in the
1980s to consolidate public sector activities and promote the private sector as the engine of growth,
a new financing pattern emerged. With this transformation of the economy, the decline of public
sector borrowing was compensated by an increase in financing by the private sector. The private
sector has relied on the banking system for its financing needs, of which a large portion was
intermediated through the banking system – the ratio of bank credit to gross domestic product
(GDP) in Malaysia was high at 149% in 1997. Nevertheless, the ratio of bank deposits to GDP was
also high at 154% and therefore banks were able to finance their lending operations from their
deposits. * As the banking sector was heavily exposed to the economic crisis that struck the nation
in 1997, it was very cautious in extending new credits. In the post–crisis period, loan growth was
low; for example in 1998 and 1999, growth was less than the target of 8% proposed by the
government. * The malignancy of the Asian financial turmoil was derived from the externally–
driven currency crisis with the internally induced banking crisis. In other

Canadian Corporate Bonds
Corporate Bonds are the financial instruments through which corporates can raise capital by
borrowing money from investors. In return company pays interest on the principal. And the principal
is returned to the lender after pre–determine period also called as maturity. It is more cost effective
to raise money through bonds than through equity. Even if the company is going through a difficult
financial crisis, it still has a legal commitment to pay interest and principal to lenders. Bond
investors have priority over shareholders on the company's properties in case of bankruptcy.
Companies issue bonds for a variety of purposes, including buying new assets, investing in research
and development, refinancing debt, or financing mergers and acquisitions. Corporate bonds are one
of the main products of the fixed income market. These instruments have similar features that of a
bank loan, except that they can be transferrable from one lender (investor) to another, and can be
traded in market which is known as corporate bond market. Trading is performed either on price or
yield basis. Bond usually trades either at premium or at discount to its face value. The quality of the
bond is derived from creditworthiness of the company or default risk. Based on potential default
risk, bonds are evaluated on credit rating ... Show more content on Helpwriting.net ...
Due to proximity and easy of accessibility, US corporate bonds are the biggest competitors to
Canadian corporate bond market. Due to domestic operation and high yield, it is cheaper for many
corporate issuers to issue bonds in Canada. But because of small size of market in Canada, it is very
difficult for Canadian corporations to distribute economical large issuance in domestic market as
compared to US market. Usually Canadian corporation issues less than $250 million issuance in
Canada. For absorption of more than $300 million issuance, these corporations usually rush to

Bond Valuation
Assignment no. 1
Fixed Income Securities and Markets
Question A.1
Given the following bond:
|starting date |30/09/2011 |
|maturity date |30/09/2014 |
|coupon rate |4.00% |
|coupon frequency |annual |
|day count |act/act |
|nominal value |100 |
a) Calculate the price of the security on the 30/09/2011, if the yield to maturity is 5% (NB:
Price=PV of future cash flows). b) Given the price and the yield to maturity of the bond, calculate
the three components of the (expected) total return of this investment (if you invest 100 ... Show
more content on Helpwriting.net ...
Given a coupon of 3.7, accrued period of 68 days and total coupon period of 183 days, the accrued
interest at settlement date is equal to:

Questions On Basics On Bonds
Basics on bonds
Naranchimeg Tumurbaatar
Webster University Abstract
The purpose of this paper is give idea to individuals what is investing, how it is beneficial to them,
specifically concentrated on how bond works, how to approach the bond market, and what should
consider when purchasing the bond, because thousands of people wondering how they invest their
money, where they should invest, and how the investing process works. It will be very helpful for
the individuals who are first time investors. Financial Paper: Bond Bond is basically IOU according
to Joshua; when you purchase a bond, company or government borrow your money in return they
will pay you back certain interest rate in length of the time on the agreement Company ... Show
Furthermore, bondholder can sell it before its maturity dates when investor needs money or it can be
sold more than what it is purchased. As you can see, bond investment increases your capital and
income with offering less risk (Esme).
How and where bonds are issued and traded
The process of issuing bond is very complex, because typically bonds do not directly involve issuers
and public and involve large amount because of the sum. The process involves three main groups:
issuers, underwriters, and purchasers (Chad). As I mentioned earlier, issuers are the corporations or
government who sell the bonds and borrow money from investors. Underwriters are the, who act as
an intermediary between issuers and investors, investment banks or other financial institutions that
helps issuers to sell their bonds. The good examples are going to be major broker–dealer firms like
Goldman, Merrill Lynch, Morgan Stanley, etc. Purchasers are the bondholders, who bought a bond
and lend the money and purchase the bond. Not like a stocks, bond investors do not have an access
to bond price right away. There is no such a thing that bond market is located in a building and
shows all the prices and changes show on the display. Basically, bond market is combination of
several numbers of extremely large bond dealers. The reason is there is no quoted price for the bond
for trade and it happened over the counter not in exchanges.
Major segments of bond
According to Gitman and Joehnk,

Advantages And Disadvantages On Bonds
What are bonds?
You have probably heard people talking about bonds, or read about them and how much one can
earn if they invest in bonds but you really do not know what bonds are or how they work. We shall
take you through all these and enlighten you.
Bonds are debt securities or debt investment whereby, if you buy a bond, you are actually lending
your money but with security. It is a way for you to invest your money by lending it. Borrowers will
issue bonds so as to raise funds from investors and most of the funds are usually used as capital for
further ventures or expansion. Some of the entities that issue bonds are governments, corporations,
municipalities and other federal agencies.
The entity that issues the bond is known as the Issuer and when you purchase one, ... Show more
1. High taxes are charged on the interest payments from bonds than most of the other investment
incomes. Therefore this will affect how much you end up with as interest because what you get is
what is left after the taxes have been deducted.
2. Bonds may have low–risk factors; however, they also have lower returns if compared to other
investments such as stocks. This means that if you are going for high returns in a short time then
bonds are not the best option.
3. If you buy a bond when interest rates are low, even if the interest rates go up, you will still get
your interests calculated at the low rates rather than being revised to the high–interest rates. This,
therefore, means that you are stuck at earning using low–interest rates no matter how high the
interest rates rise.
4. The interest you an investor earns from bonds are mostly paid either once a year or twice a year in
most cases. This means that if you are looking for a more regular source of income as an investment,
then bonds would not be great for you unless you find bonds that pay off interest more

The Pros And Cons Of Bonds
Bonds are income investments used to raise capital – whereby investors loan out their finances
usually to Municipalities, Corporations or Governmental (Siegal & Yacht, 2009) entities who
borrow the required funds for a specific period of time agreed upon by both parties (bond issuer and
bond holder) at a regular or fixed interest rate (Investopedia, 2018). The bond issuer is the person or
company selling or borrowing bonds while the bond holder is the person or investor buying or
lending bonds (in other words, the bond holder acts as a bank loaning his money to the bond issuer).
Bonds have several features but the main ones are:
– Bonds carry interest which is also called Coupons that are paid to the bond holder (for using his
money) ... Show more content on Helpwriting.net ...
But when it makes losses, you lose out as well.
– As a new shareholder, you have the right to voice out your opinions and contribute whatever ideas
you may have, make decisions that might benefit the company or those in relation to how it is run.
How stocks are traded
Stocks are traded on stock exchanges after a company completes an Initial Public Offering (IPO)
because its shares now become public and are ready to be traded (Hayes, 2018). This is a very
straightforward way of investing unlike bonds that can be time consuming and mostly involve a lot
of documentation. Every country has stock exchanges (physical or electronic) where investors go
whenever they want to buy or sell stocks.
How to Calculate an Annual Rate of Return
Annual Rate of Return – this is the interest rate that is earned on an investment for the whole year
(Investopedia, 2018). It is calculated by first adding any income earned to the total obtained after
subtracting the end of year amount earned with the beginning of the year amount. After this, divide
the total amount obtained by the original amount invested at the beginning of the year. This can
further be illustrated as

Notes On Bonds Valuation And Bond Rates
Bonds Valuation
Bond
Company/
Rating
Face Value (FV)
Coupon Rate
Annual Payment (PMT)
Time–to Maturity (NPER)
Yield–to–Maturity (RATE)
Market Value (Quote)
Discount, Premium, Par
A–Rated
General Electric Capital/AA
$1,000
4.00%
$ 40.00
15
3.897%
$1,011.70
Premium
B–Rated
Hercules Inc./BB
$1,000
6.50%
$ 65.00
15
5.944%
$1,055.00
Premium
C–Rated
Albersons Inc./CCC
$1,000
8.00%

$ 80.00
17
8.053%
$ 995.00
Discount
Explain the relationship observed between ratings and yield to maturity. So By looking at Coupon
Rate & YTM, one can predict of Bond is traded at Par, Discount or Premium
Explain why the coupon rate and the yield to maturity determine why the bonds would trade at a
discount, premium, or par. It's necessary to determine the yield to maturity and coupon rate because
the the discount rate for a coupon bond is its yield to maturity, which equates the present value of
the future cash flows of bond relative to its price. Generally, a bond trade at a discount because its
coupon rate comparatively lesser than as compared to it yield to maturity. It trade at a premium
because its coupon rate increases its yield to maturity. A bond trade at par because coupon rate
equals its yield to maturity (J. Van Horne &, John M Wachowicz, 2008).
Based on the material you learn in this Phase, what would you expect to happen to the yield to
maturity and market value of the bonds if the time to maturity was increased or decreased by 5
years? If Time to maturity increases by 5 Yrs,

Boeing Bond Analysis
Boeing Bond Analysis Presented to Dr. ––––– Prepared by Filipe Ferro October 9, 2012 Table of
Contents Boeing Company 3 Bond Issue 3 Unsystematic Risk 4 Principal Repayment 4 Debt to
Invested Capital 4 Debt to Equity 4 Current & Quick Ratios 5 Interest Repayment 5 Times
Interest Earned 5 Credit Position 6 Competitor Analysis 6 General Dynamics 6 Northrop Grumman
7 Systematic Risk 7 Market Responsiveness 7 Duration 8 Modified Duration 9 Accuracy of Rating 9
Interest Rate Expectations 9 Summary 10 Appendix 11 Descriptive Statistics 11 Regression Analysis
11 Duration & Modified Duration 12 References 13 Boeing Company Boeing is a
manufacturer of aircrafts and national defense ... Show more content on Helpwriting.net ...
If bankruptcy occurs, debentures will be the last of debt holders to get paid. Although it is not
exactly good to have this somewhat high ratio, knowing that Boeing has a brand new and appealing
aircraft reassures that positive future cash flows will cover this financial leverage. S&P's
NetAdvantage highlights the potential sales to emerging airlines from China and airlines with old
worn out planes in the U.S. and Europe. S&P's industry survey states "China, India, the Middle
East, Eastern Europe, and Latin America, will drive growth in global air travel and demand for new
aircraft."4 The market for aircraft purchases looks like it will grow in the coming years, thus Boeing
will have greater opportunities for sales. Current & Quick Ratios The current assets to current
liabilities ratio was 1.22 for the 4th quarter of 2011, which means every $1 in current liabilities is
covered by $1.22 in current assets. Boeing has enough current assets to pay off all its current
liabilities if it needed to do so. The current ratio has been 0.9 for 2007, 0.8 for 2008, 1.1 for 2009,
and 1.1 for 2010. The current ratio has been on an upward trend since 2008 which would imply
added financial security in forecasts. But the current ratio assumes that a company's current assets
are highly

What Is The Surplus Of Disposable Bonds?
The surplus of disposable income makes people want to become an investor or a saver by
transferring their excess money to an individual, a company or government that have little in order
to meet their immediate needs. This transfer is mostly carried out by a bank or broker and before
delving into becoming an investor, it is paramount to take a closer look at the different types of
investments, their market and understand how they work and how the diverse investors can plan
their investment goals and strategies. In this essay, I am going to discuss what bonds and stock
means, list their features, how they are traded, how to calculate an annual rate of return, et al.
Bonds according to Siegal and Yacht (2009) publicly issued and traded ... Show more content on
Helpwriting.net ...
Although, sometimes the shares of stock does not increase as the company's profit increases due to
different factors that have to do with the market or the economy.
There are two different types of stocks, namely, common stock and preferred stock; therefore they
have different features: dividend, corporate organization and control, preemptive rights, voting
rights and issues (common stocks), no voting right, convertible and receive higher claim on assets
and earnings (dividend) than common stocks. (The Economic Times, 2017) Immediately a company
finishes the initial public offering (IPO), the shares become public and traded in the secondary stock
market, where the buyers and sellers (the existing shareholders) of the stocks meet to decide on the
price to trade their shares. (Hayes, 2017)
Furthermore, the annual rate of return on investment, which is the return created from investment
over a particular period of time can be calculated by first knowing the income, the gain or loss in
value and the original value at the beginning of the year. Then, the percentage return can be
estimated by adding the income and the gain together, then divided by the original value {[income +
gain / original value} or {[income + (ending value – original value)] / original value} (Siegal &
Yacht, 2009, p. 232)
When I buy a share of stock for $100 that pays no dividend

Chapter 15 Investing in Bonds
CHAPTER 15 Investing in Bonds
|CHAPTER 15 QUIZ |
TRUE–FALSE
| |A bond debenture is a legal document that details all of the conditions relating to a bond issue. |
| |One reason corporations sell corporate bonds is to help finance their ongoing business activities. |
| |A mortgage bond is sometimes referred to as a secured bond. |
| |A sinking fund is a fund to which annual or semiannual deposits are made for the purpose of
redeeming a bond issue. |
| |A revenue bond is a bond backed by the full faith, credit, and unlimited taxing power ... Show
F (p. 483) |6. A (p. 494) |
|2. T (p. 484) |7. D (p. 497) |
|3. T (p. 485) |8. B (p. 502) |
|4. T (p. 486) |9. B (p. 492) |
|5. F (p. 496) |10. D (p. 489) |
CONCEPT QUESTIONS
Concept Check 15–1 (p. 484)
1. What is the usual face value for a corporate bond?
The usual face value of a corporate bond is $1,000, although the face value of some corporate bonds
may be as high as $50,000. (p. 483)
2. In your own words, define maturity date and bond indenture.
The maturity date for a corporate bond is the date on which the corporation is to repay the borrowed
money.
A bond indenture is a

Essay on US Bond Market
You have been asked to write a training document about the US Bond Market for use in the new
employee–training program. In your document, you must make sure to address each of the
following:
1a: The key players in the market; and the types of investments available to both individual
investors and institutional investors,
Bond Characteristics
A bond is a "security" which gives the holder a financial claim on the issuer. This claim protects the
holder in circumstances in which the issuer is unable to pay the amount due. It is made formal by the
"trust indenture", a legal document, which specifies all of the bond's features and the legal rights and
obligations of all the parties to the agreement (http://www.finpipe.com/bndchar.htm). ... Show more
For further discussion on the main types of bonds, click on the links below: Asset–Backed Securities
Convertible Bonds Corporate Bonds Eurobonds Extendible/Retractable Bonds Foreign Currency
Bonds Government Bonds High Yield or "Junk" Bonds Inflation–Linked Bonds U.S. Treasury
Inflation–Protected Securities (TIPS) Mortgage–Backed Securities Zero Coupon or "Strip" Bonds
1b. The way transactions are carried out,
The above links address some of these issues. In other words, the bond market is a market in which
the bonds of corporations and governments are traded (i.e., banks, etc.) and transacted in various
settings (i.e., banks, private sectors, government agencies) and in various ways (i.e, over the counter,
electronically, telephone, etc.) www.econ100.com/eu5e/open/glossary.html.
In fact, bond investments are carried out in several ways, depending on the type of bond:
The bond market is any place where newly issued and existing bonds are bought and sold, usually
before maturity, by investors looking for income. This market can be a physical trading area (banks,
public sector, etc.), but more often the bonds are traded electronically by investors using computers
and telephone communications www.state.il.us/treas/Education/Glossary.htm. In general, in the
bond market, however, trades bonds are also issued by corporation and government. • Companies
can

Notes On Bonds And Bonds
Chapter One
Bond Basics
What are bonds?
Bonds are investment tools in form of a debt. When the government, corporate bodies, or
municipalities want to borrow from the public, they issue bonds. By investing in bonds, you are
simply lending your money to the issuer of the bond (government or a corporation) at an interest for
a given period of time. Usually bonds have a face value, which is the money being borrowed, the
coupon rate which is the interest rate to be paid to the investors and the maturity date, which is the
date you get paid the money you invested. Bonds are issued for varying period of time, may be three
months, one year or even five years.
When an organization issues a bond, it makes a commitment to you (investor) that it will make
regular (quarterly, biannually, or yearly) payment of the interest at a specified rate on the total
amount it borrowed from you (face amount) until the maturity date of the bond when it will repay
the principal. This simply means that when you invest in bonds you start earning interest regularly
until the maturity date of the bond when the issuer of the bond pays back the principle (money
borrowed). Because of the facts that you get paid interest regularly and the principle upon the
maturity of the bond, this investment instrument is often termed as a fixed income security.
Bonds alongside other investment vehicles such as term deposits and cash are often classified
together as income assets because they provide a reliable and

Coupon Bond : Coupon Bonds
Coupon Bond – Coupon bonds are unregistered and coupons are attached to the bond and the single
interested has to be payee by the payable, also the coupon is been submitted semi annually. Coupon
bonds are also known as bearer bonds (Adair, T.A. Jr., Cornett, M.M., Nofsinger, J., 2015).
A. Compute the yield to maturity of Land'O'Toys bonds before the purchase announcement and use
it to determine the likely bond rating.
Answer A. Compute Yield To Maturity (YTM) =
N = 20 years
Par Value (PV) =–1,037.19
Payment On Monthly Time (PTM) = 32.50
Future Value (FV) = 1000
Carriage Paid To (CPT) I= 3.00%
Here, Yield To Maturity (YTM) * 2 (Adair, T.A. Jr., Cornett, M.M., Nofsinger, J., 2015) = 3.00% * 2
= 6.00%
Thus comparing the two values, that is the calculated value = 6.00% and the bond rating and yield
given in the problem says that by having Bond A yield can be 6.0%. Thus by looking at this, the
bond rating to be announced should be Bond A (De Spiegeleer, J., Schoutens, W., & Van Hulle, C.,
2014).
B. Assume the bond's price changes to reflect the new credit rating. What is the new price? Did the
price increase or decrease?
Answer B. Here, by assuming that the bond 's price will change and the new credit rating will be
reflected. The new Yield To Maturity(YTM) should be 7.3% that is yearly. Thus, the new price is as
mentioned below:
N = 20 years
I = 3.65
Payment On Monthly Time (PTM) = 32.50
Future Value (FV) = 1000 therefore , Carriage Paid To (CPT) PV =

Key Features of a Bond
A. What are the key features of a bond?
answer: if possible, begin this lecture by showing students an actual bond certificate. We show a real
coupon bond with physical coupons. These can no longer be issued––it is too easy to evade taxes,
especially estate taxes, with bearer bonds. All bonds today must be registered, and registered bonds
don't have physical coupons.
1. Par or face value. We generally assume a $1,000 par value, but par can be anything, and often
$5,000 or more is used. With registered bonds, which is what are issued today, if you bought
$50,000 worth, that amount would appear on the certificate.
2. Coupon rate. The dollar coupon is the "rent" on the money borrowed, which is generally the par
value of the ... Show more content on Helpwriting.net ...
. . 38.55 385.54 1,000.00
Expressed as an equation, we have:
Or:
vb = $100(pvifa10%,10) + $1,000(pvif10%,10) = $100 ((1– 1/(1+.1)10)/0.10) + $1,000
(1/(1+0.10)10).
The bond consists of a 10–year, 10% annuity of $100 per year plus a $1,000 lump sum payment at t
= 10:
pv annuity = $ 614.46 pv maturity value = 385.54 value of bond = $1,000.00
The mathematics of bond valuation is programmed into financial calculators which do the operation
in one step, so the easy way to solve bond valuation problems is with a financial calculator. Input n
= 10, kd = i = 10, pmt = 100, and fv = 1000, and then press pv to find the bond's value, $1,000. Then
change n from 10 to 1 and press pv to get the value of the 1–year bond, which is also $1,000.
K. Suppose a 10–year, 10 percent, semiannual coupon bond with a par value of $1,000 is currently
selling for $1,135.90, producing a nominal yield to maturity of 8 percent. However, the bond can be
called after 5 years for a price of $1,050.

K. 1. What is the bond's nominal yield to call (ytc)?
Answer: if the bond were called, bondholders would receive $1,050

Wells Fargo Corporate Bond
The mortgages and corporate bonds have similarity in trading, however the risk/reward are different.
Mortgage bonds is a bond backed by a mortgage or pool of mortgage typically backed by real estate
or physical equipment that can be liquidated. The mortgage Bondholder has the right to sell property
to compensate in the case if the bond defaults. These type of mortgage bond are generally
considered high–grade and safe investments. A corporate bond is a debt security issued by a
corporation typically backed by the ability of the company to make payment, which is typically
driven by the money earned from the future operation. Also, there are few cases where the
company's physical assets may be used as collateral for bonds (Investopedia, 2016). ... Show more
Wells Fargo can sell for example $750 million worth of future mortgage to Goldman Sac in July
2013 which will should originate in October 2013. Wells Fargo has an idea of volume of loan they
produce in quarter. The typical sales price Goldman will pay, in this case "the 22+ means 22 and a
half/32nds, or 45/64ths, or .703125. This quote assume everyone knows on the buying and selling
side knows the 'handle,' which is the main price, near par, that the bond will trade at during
origination" (The Bankers, 2013, para. 6). In October 2013, Wells Fargo will be buddle 2000
mortgage worth $750 million securitization for an average loan balance of $375,000. The 2000
homeowner will close the loans at interest rate from 4.375% to 4.5% in October 2013 which shows
0.375% to 0.5% difference between the homeowner rate and the bond rate. The majority of the extra
interest is paid monthly to the mortgage bond service and mortgage insurer such as Fannie Mea or
Freddie Mac. Now the Mortgage bond is grouped together, assigned a structure, assigned mortgage
service and guaranteed by the mortgage insurer it becomes a tradable bond. Goldman Sac can sell
the bond to Vanguard fund which can earn 4% on its investment. If the interest rate goes down and
people refinance at the lower rate that will impact the value of bond (The Banker,

Corporate Bonds
Corporate bonds have had a long thriving history in the fixed income market. The first corporate
bond issued dates back to the construction of railroads after the conclusion of the Civil War.
Increasing in popularity each year, the corporate bond issuance rate has been on a steady incline
with daily trading in the billions. Corporate bonds are very complex but simple enough to where
everyone can increase their wealth by investing in them. Essentially corporate bonds are debt that a
company issues to the investor. Issued by either a private or public company, companies use these
funds to build facilities, buy equipment and/ or expand their business. These businesses are typically
public utilities, transportation companies, industrial ... Show more content on Helpwriting.net ...
There are many advantages for corporations, banks, or investors to look into investing or issuing
Eurobonds. One of the advantages is that Eurobonds is that they have no currency exchange risk
because the bond is issued and repaid in U.S. dollars. This is an advantage because the dollar is the
reserve currency of the world. These particular bonds are also more favorable to the issuer because
they are easily transferable and require less investment and effort. The income is for the most part
untaxed and the coupon interest needs to be paid is less than that of other international bonds. In
general, corporate bonds have many advantages to the company and the investor. The investor is
actually safer when they decide to buy corporate bonds in comparison to stocks. When investing in
stocks there is uncertainty in the return you will receive. However when investing in bonds you
know the amount that you will receive in certain increments at a set time. Most bonds have fixed
coupon payments for the duration of the bond. These coupon payments are usually semi–annually,
yearly, monthly, quarterly, or at the maturity of the bond. Also the payments are set at the issuance
of the bond so the bondholder receives a known fixed income when they purchase a bond from a
company.

Stocks and Bonds
In the financial markets, the most common forms of marketable securities are stocks and bonds.
Though they have some similarities to each other, they differ greatly in many aspects. Broadly
speaking, both financial instruments enable one to invest in corporations, public and/or private, with
possible profitable returns in the future.
Stocks (or shares), by definition, are shares of ownership in a company. By purchasing stocks in a
company, the investor becomes a part owner, and thereby owns a percentage share of the company's
after tax profits. Stocks/shares have two key characteristics: 1) they can be issued in small
denominations: an investor can purchase as many or as few shares in a company as he/ she wants,
thereby becoming a ... Show more content on Helpwriting.net ...
Stocks were rising on expectations of economic recovery later in the year, and bond prices fell as
their yields increased (bond prices and yields are inversely related). The yield on the 2–year notes
and 10–year notes, which are heavily influenced by the Fed–regulated interest rates and inflation
expectations, respectively, increased from .76% to 1.4% and 2.25% to 3.93 during the same period,
respectively. Concurrently, the S&P 500 had gained 4.8%, rebounding 40% from March lows.
Though stocks have statistically delivered higher returns in the long term compared to bonds, bond
prices are less volatile. The dividends paid out on stocks are uncertain and depend on the
distributable profits of the company, the company's investment plans and cash needs for the same,
and other such factors. On the other hand, bonds generally make a pre–specified interest payout to
all bondholders periodically, thereby ensuring an assured, known cash–inflow in the hands of a
bond–holder. Further, on maturity of the bond, a pre–determined principal amount is paid out by the
issuer to the bondholder, to purchase back the bond. Hence, a bondholder who holds the bond to
maturity, knows exactly how much he /she will receive both by way of interest as well as principal
on maturity. This is completely untrue for stocks, where neither the dividend flow nor the capital
appreciation is predictable with certainty.
Bonds are therefore relatively safer

Types Of Investments And Bonds
Introduction
This paper will examine two basic types of investments; stock and bonds, from an investor's
perspective highlighting the advantages and disadvantages between common stock (equity) and
corporate bonds (debt).
Webster Dictionary defines investment as "the outlay of money usually for income or profit usually
in a tangible asset such as property ". With both stocks and bonds, the only thing tangible is a simple
piece of paper, a certificate. On the surface, these certificates may seem the same, however there is a
very important fundamental difference. Owning a stock certificate is evidence of being a
shareholder; hence money is exchanged for a portion of ownership in a company. A bond certificate,
on the other hand, represents a contract and evidence of giving a loan to a company. Stocks are
considered equity investments and bonds debt investments. This key difference brings its own set of
pros and cons to each of these types of investment and affects their level of risk and return.
The Advantages of Stocks
Corporations issue both stocks and bonds to raise capital to purchase land, equipment, building, or
even pay off debt. However, there are several advantages to investors to purchase a stock in a
corporation over bonds. First, when you purchase a share of stock you essentially become a part
owner in the company. With this ownership comes special privileges, such as the right to vote on
who sits on the board of directors and on matters that could

The Yield Spread Of A Corporate Bond And A Comparable...
2. Literature review
The yield spread is defined as the difference between the yield on a corporate bond and a
comparable government bond. Prior to a study done by Merton (1974) yield spreads were
considered to be mainly driven by expected default losses on corporate bonds, tax premiums and
risk premiums (Radier et al, 2015). However, Merton (1974) and more recent research has shown
that factors such as equity volatility, liquidity, interest rate levels and the slope of the treasury term
structure are also significant factors in determining changes in the yield spread (Radier et al, 2013;
Lepone & Wong, 2009; Peter & Grandes, 2007; Collin–Dufresne, Goldstein & Martin, 2001).
2.1 Equity Volatility
One of the three factors which Merton (1974) found to be a significant determinant of the yield
spread was the probability of default as indicated by the firm–specific equity volatility on the stock
market. Merton (1974) predicted a positive relationship between equity volatility and the yield
spread. According to Merton (1974), a short put option on the equity of a company is equivalent to a
corporate bond issued by that company. This means that any individual corporate bond yield should
have a positive relationship with the equity value of the firm (Jubinski & Lipton, 2012).
Radier et al (2015); Hibbert et al (2011); Campbell & Taksler (2004) all find evidence supporting
Merton (1974)'s prediction of a positive relationship. Radier et al (2015) is the only one of these
studies

The Differences Between Stocks And Bonds
First Personal Assignment
Americans have a lot of options when it comes to where they put their money. Two of these options
are stocks and bonds. This paper will serve as a discussion on the topic of the advantages and the
disadvantages of both stocks and bonds. This discourse will attempt to compare the differences
between stocks and bonds, as well as incorporating various advantages and disadvantages to each
investment. Some of the basic differences between a stock and a bond include would be that stocks
are normally issues by a company or corporation. Bonds, however, can be issued by corporations
and companies or they can be issued by the government. Stocks can pose more of a risk because
they pay their investors dividends, which are not always guaranteed. The only way a bonds would
not pay out dividends to its investors is if the company or organization had to go bankrupt. Overall,
there is more safety in bonds than what one would receive with stocks.
Advantages of investing in stocks
One of the primary reasons why stock prices go up or down, is essentially, the profitability of the
company. LearninMarkets.com (2009) lists four advantages of investing in stocks. The first
advantage is compound interest. "Compound interest is a miracle of the financial world. Compound
interest, when given time, helps your money grow faster and faster" (learningmarkets.com, 2009,
pg.1). According to Herbert Mayo (2012), the definition of interest that compounds is the "process
by which

Finance: Bonds
Managerial Finance
Chapter 5, Quiz
Name: Emily Smith
Multiple Choice: Please circle the correct answer choice
. Which of the following events would make it more likely that a company would choose to call its
outstanding callable bonds? a. The company's bonds are downgraded. b. Market interest rates rise
sharply. c. Market interest rates decline sharply. d. The company 's financial situation deteriorates
significantly. e. Inflation increases significantly. . A 10–year bond with a 9% annual coupon has a
yield to maturity of 8%. Which of the following statements is CORRECT? a. If the yield to maturity
remains constant, the bond's price one year from now will be higher than its current ... Show more
What is their yield to call (YTC)?
. Garvin Enterprises' bonds currently sell for $1,150. They have a 6–year maturity, an annual coupon
of $85, and a par value of $1,000. What is their current yield?
. Assume that you are considering the purchase of a 15–year bond with an annual coupon rate of
9.5%. The bond has face value of $1,000 and makes semiannual interest payments. If you require an
11.0% nominal yield to maturity on this investment, what is the maximum price you should be
willing to pay for the bond?
. If 10–year T–bonds have a yield of 6.2%, 10–year corporate bonds yield 8.5%, the maturity risk
premium on all 10–year bonds is 1.3%, and corporate bonds have a 0.4% liquidity premium versus a
zero liquidity premium for T–bonds, what is the default risk premium on the corporate bond?
. 5–year Treasury bonds yield 5.5%. The inflation premium (IP) is 1.9%, and the maturity risk
premium (MRP) on 5–year bonds is 0.4%. What is the real risk–free rate, r*?
. Crockett Corporation 's 5–year bonds yield 6.85%, and 5–year T–bonds yield 4.75%. The real risk–
free rate is r* = 2.80%, the default risk

High Yield-Bonds Essay
High Yield–Bonds
A bond is debt to whoever sells the bond to an inventor. If you buy an IBM bond, you are loaning
money ($1000) to IBM instead of a bank loaning money to them. Just like a bank, you are going to
charge IBM interest on your money, as well as a return of principle when the loan is due (ten years
later). The company does not go to the bank to borrow the money, because the bank will rate the
company as a high risk company. Hence, banks are really tight with their money. High yields bond
investment relies on an credit analysis in that it concentrates on issuer fundamentals, and a "bottom–
up" process. It focuses more on "downside risk default and the unique characteristics of the issuer.
In a portfolio of high yield bonds, ... Show more content on Helpwriting.net ...
This was a result of a major chance in business conditions, or assumption of too much financial risk
by the issuer.
Different types of bonds
Along with the many different characteristics of bonds such as, the way the pay their interest, the
market they are issued in, the currency they are payable in, protective features and their legal status.
Bond issuers may be governments, corporations, special purpose trusts or even non–profit
organizations. Usually it is the type of issuer or the particular nature of a bond that sets it apart in its
own category.
Government Bonds
Supranational Agencies
A supranational agency is like a World Bank, that leaves assessments or fees against its member
governments. The most important factor is the support and taxation power of the underlying national
governments that allow these organizations to make payments on their debts.
National Governments
The "central or national governments also have the power to print money to pay their debts, as they
control the money supply and currency of their countries. This is one reason why investors consider
national governments (bonds) of the most industrial countries to be almost "risk free" from a default
point.
Quasi–Government Issuers
Many government related institutions issue bonds, some supported by the revenues of a specific
institution and some guaranteed by a government sponsor. For example, in Canada they have a bank
that issue bonds that are guaranteed by the

Stock and Bond
Allie measured her foot and it was 21cm long, and then she measured her Mother's foot, and it was
24cm long. "I must have big feet, my foot is nearly as long as my Mom's!" But then she thought to
measure heights, and found she is 133cm tall, and her Mom is 152cm tall. In a table this is: Allie
Mom Length of Foot: 21cm 24cm Height: 133cm 152cm The "foot–to–height" ratio in fraction style
is: Allie: 21 133 Mom: 24 152 So the ratio for Allie is 21 : 133 By dividing both values by 7 we get
21/7 : 133/7 = 3 : 19 And the ratio for Mom is 24 : 152 By dividing both values by 8 we get 24/8 :
152/8 = 3 : 19 The simplified "foot–to–height" ratios are now: Allie: 3 19 Mom: 3 19 "Oh!" she
said, "the Ratios are the same". "So my foot is ... Show more content on Helpwriting.net ...
For citation guidelines, please refer to the table in the APA Style section of the syllabus. Reply to at
least two posts. Responses can be made to students or to your instructor. Responses to other
individuals' posts should: Expand on their ideas. Discuss the differences between your thoughts and
theirs. Explain why you agree or disagree.
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
To post your main response to this topic, click the blue Respond button below. To respond to a
classmate or your instructor, click the blue Respond button below his/her post.
––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––
Respond This section lists options that can be used to view responses. Expand All Collapse All Print
View Show Options Hide Options Select: All None Unread Read Inverse Mark selected as: Read
Unread View Selected View All Responses Responses are listed below in the following order:
response, author and the date and time the response is posted. Sort by Read/Unread Sort by
Response Sorted Ascending, click to sort descending Sort by Author Sort by Date/Time* Collapse
Mark as Read WELCOME TO WEEK 9!!!!!! Instructor Drakopoulou 9/7/2013 9:26:59 AM Our
Week 9 discussion begins today. When posting your main response, be sure that you address all

Stocks Versus Bonds
Advantages and Disadvantages of Stocks and Bonds
Name
Institution
Advantages and Disadvantages of Stocks and Bonds
Introduction
Stocks and bonds qualify as the two major classes of assets that are used by investors in planning
their portfolios for investment. Stocks offer the investors an opportunity to have a stake in the
company, whereas the bonds are affiliated to the loans that are made to a company. Generally stocks
are considered to be very volatile and much risky to invest in as compared to the investment in bond
(Alexieff, 2014). However there exist different stock and bond types that have with them varying
volatility levels and the risks also vary.
Types of Stocks and Bonds
There exist different types of stocks and bonds ... Show more content on Helpwriting.net ...
A stock holder has the right vested upon him to sell the stocks at a much higher price as compared to
what he paid for, whenever he or she deems it necessary.
A stock holder has a voice in the company as they are in a position to contest for the post of being
the directors in the organization, depending on the share capital that has been invested by a
shareholder in the company.
A shareholder in a company has the right to get involved in the bonus shares that have been declared
by the company. Bonus stocks are the additional stocks that are assigned to the stock holders apart
from the dividends (Alexieff, 2014).
Investing in stocks enables one to increase the chances of obtaining credit facilities from financial
institutions like banks and the macro financing institutions. The share certificate is used as collateral
for the loans.
Stocks are inheritable, this means that one can assign the shares to the next of kin who is entitled to
the stake in the company once the shareholder deems necessary to exit the company.
Stocks are also advantageous as the holders are only subjected to the limited liability in cases of a
loss (Mobius, 2012). Therefore, in the event of liquidating the company, the shareholder is only
liable up to the capital limits invested in the company.
Stocks can again be used as leverage for investment.
Disadvantages of Stocks
The following are some of the negative implications of stock: Getting the Last Payment
In the event of

Bonds
INTRODUCTION
– The Swan Davis Corporation case focuses on following issues:
• The importance in bond and stock valuation;
• The capital structure of the company; and
• How they effects to the capital budgeting decisions of the company.
– Swan– Davis Inc., (SDI) manufactures equipment for sale to large contractors, the company was
found in 1976 and it went to the public in 1980 at its shares value risen from $1 to $15 since it enter
to the market.
– The financial statements for the past three years show a decline trend in both the operation and
return on shareholder of the company, so a closer look at the factors contributing to this decline is
needed.
– The capital structure of company mainly constitutes of:
1. Deb
a. Bond A ... Show more content on Helpwriting.net ...
– Moreover, capital budgeting correlates to security valuation as well when the inflation occurs. For
that circumstance, the firm should identify the projects that implement to the firm's value by
preparing the portfolio diversifying their products in purpose of appealing to investors. This kind of
task requires the firm, especially the marketing research group, to specify the size of market and
potential customers to reach their needs.
Question 4: As the case concerned, the B bond is not actively traded and no valid market quotation
is available. The reasonable interest rate to use in valuing the B bonds is calculated as follow: Using
the following give data:
Initiative data Calculation result is compounded semiannually
Par value (FV) = $1,000
Coupon rate = 6.90%
Payment annually = $69
Year to maturity = 25
Year to call = 23
Payment semiannually = $34.5
N = 46
Formula:
Present value of Bond B's cash flow is $813.88 From the perspective of the most recent S&P Bond

Guide, due to the financial problem in 1994, three–level downgrading was applied to the B Bond
yield rate that results in the rating position change in industry average yield into BB by 8.8%.
Therefore, the different BB yield and the industry average rate indicated that the investor required a
higher return on B bond since it is more risky than that in the previous year. There is a restriction in
decision making of buying the B bonds in this

Questions On Stock And Corporate Bonds
Introduction
There are two basic types of securities, stocks and bonds. Although with both of these investments,
money in exchanged for a certificate, they are fundamentally different. A stock is evidence of being
a shareholder, hence an owner in a company. A bond, on the other hand, while still a certificate,
represents a contract and evidence of a loan to a company. Therefore stock is a form of an equity
investment and bonds are a form of a debt investment. Although there are a variety of stocks and
bonds, this paper will focus on common stock and corporate bonds and highlight the advantages and
disadvantages of investing in either of these two financial instruments. Knowing the difference
between stocks and bonds will help investors find the right level of risk and return for their
portfolios.
The Advantages of Stocks
Corporations issue both stock and bonds to raise capital to purchase land, equipment, building, or
even pay off debt. However, there are several advantages to investors to purchase a stock in a
corporation over bonds. First, when you purchase a share of stock you essentially become a part
owner in the company. With this ownership comes special privileges, such as the right to vote on
matters that could affect the future of the company. The stockholder also has the right to a share of
the company's profits, paid out in dividends as well as he appreciation in the value of the stock.
There is no limit on how much his stock value can increase which

Convertible Bonds
Newcastle Business School
Sample Report
Sample Report
The following report demonstrates the basic format of a report, as outlined in the report section of
the Student Manual. Formats may vary slightly from subject to subject, but the fundamental
principles are the same. Always check with your lecturer about specific formatting. It is expected
that you will attached an assignment cover sheet to each assignment you submit.
Page 2
Table of Contents
EXECUTIVE SUMMARY 1. INTRODUCTION 2. NATURE OF CONVERTIBLE BONDS 3.
FINANCIAL ADVANTAGES AND DISADVANTAGES 3.1 3.2 ADVANTAGES
DISADVANTAGES
ii 1 1 2 2 2 3 5 5 6 7
4. ACCOUNTING TREATMENT 5. LOGIC OF THE ACCOUNTING REQUIREMENTS 6.
CONCLUSION 7. RECOMMENDATIONS REFERENCES ... Show more content on
Helpwriting.net ...
31). If a conversion ratio, rather than a conversion price, is specified, the effective price of stock to
the bondholder may be determined by dividing the par value of the bond by the number of shares
exchangeable for one bond. The conversion price, which is determined when the bonds are 30%, is
usually from 10 to 20 percent above the prevailing market price of the common stock at the time of
issue. Both the issuing form and the investor expect that the market price of the stock will rise above
the conversion price, and that the conversion privilege will then be exercised by most or all
bondholders. The indenture typically includes a call provision so that the issuing firm can force
bondholders to convert. Therefore, it is evident that firms issuing convertible debt
(1)
Page 5

often truly want to raise equity capital. The reasons that they choose convertible debt are
discussed below.
3. Financial Advantages and Disadvantages
3.1 Advantages The use of convertible debt would offer Hamilton advantages over straight debt or
stock issues. Bonds that are convertible into stock are in demand. Therefore, bond buyers are willing
to accept a low stated interest rate on such bonds, to pay a premium and accept a lower yield, or to
accept less restrictive covenants. Hamilton could thus obtain funds at a lower cost than would be
possible if it issued bonds without the conversion privilege. The advantages of a convertible bond
issue over a

Advantages And Disadvantages Of Investment Bonds
In finance, bonds are an instrument of liability. The bond issuer owes the debt to the bond holders
and the holders owes the term of the bonds and can claim the principal once the maturity date
reached. Coupon can be paid at regular intervals such as semi–annual, annual or monthly. Besides
that, the bond usually is negotiable which means that in secondary market, ownership of the
instrument can be transfer to other people. In the secondary market, bonds are highly liquid. This is
because the transfer agents have medallion stamp the bonds at the bank.
Therefore, a bonds is a form of loan or IOU (I Owe You). The lender (creditor) is the holder of
bonds, the borrower is the issuer of the bond and interest is the coupon. The borrower with external
funds supply bonds for long–term ... Show more content on Helpwriting.net ...
As a creditor (lender), between bondholder and stockholder, bondholder have the priority to receive
the rendered in advance of stockholders but they have secure creditor when the company is facing
bankruptcy. The significant difference between bonds and stock is bonds normally have a defined
term, will redeemed after maturity date, however stocks can last long for many year until the
company have opposed to liquidation.
There are some pros and cons of taking bonds as an investment instrument. The disadvantages of
investing bonds are interest rate risk. For example, fixed rate bond are taking risk when the general
common interest rate increase and their market prices will fall. Decrease in market price of the bond
will bring an increase in the rate of return received from investing bond because the payment are
fixed. This situation will reflect the ability of investor to obtain a higher interest rate on their
investment. Furthermore, bonds have different of risk and only particular risk will affect certain
investor. Bondholders will influenced by price change in bond especially for financial institutional
such as mutual

Bond Ratings and Valuation

Recommended

Recommended

More Related Content

Similar to Bond Ratings and Valuation

Similar to Bond Ratings and Valuation (9)

More from Jill Lyons

More from Jill Lyons (20)

Recently uploaded

Recently uploaded (20)

Bond Ratings and Valuation