- Bonds are loans given to governments or companies that pay periodic interest rates and repay the principal amount on the maturity date. Investing in bonds provides individuals with an opportunity to earn interest and profits from their savings in a secure manner.
- Bonds operate by issuers attaching a coupon or interest rate to bonds. For example, a 10-year government bond issued for N10b at a 12% annual coupon would pay bondholders N1200 annually and repay the N10k principal at maturity.
- Bond yields refer to the return earned on traded bonds and are calculated as the coupon amount divided by the bond's price - a lower price means a higher yield for the buyer. Bonds can be purchased
Through this article, you will come to know what are the factors being considered by the Reserve Bank of India (RBI) in order to manage the fiscal deficit in the nation and which notions are taken into consideration for implementation.
Through this article, you will come to know what are the factors being considered by the Reserve Bank of India (RBI) in order to manage the fiscal deficit in the nation and which notions are taken into consideration for implementation.
Mortgage Banking Seminar is part of the continuing series of training presentations for the Financial Services Industry. Check out our other presentations in this series and contact Saunders Learning Group if you have training needs. We can help, we have been doing training in the financial services industry for 30 years.
Legal Quest Challenge UK - Text Quest33 to 87007Bruce Lamb
80% of UK mortgages could be reduced to 70% of their value. Take the Legal Quest Challenge to find out more. Text Quest33 to 87007. @TangentPS http://www.tangentpropertyservices.com/legal-quest-challenge
Mortgage Banking Seminar is part of the continuing series of training presentations for the Financial Services Industry. Check out our other presentations in this series and contact Saunders Learning Group if you have training needs. We can help, we have been doing training in the financial services industry for 30 years.
Legal Quest Challenge UK - Text Quest33 to 87007Bruce Lamb
80% of UK mortgages could be reduced to 70% of their value. Take the Legal Quest Challenge to find out more. Text Quest33 to 87007. @TangentPS http://www.tangentpropertyservices.com/legal-quest-challenge
Etwa 20 Prozent der Endkunden besitzen ein Smartphone, im Business Umfeld sind es auf Entscheiderebene bereits rund 80 Prozent, so eine aktuelle Forbes Umfrage. Ein steigender Trend über die reine Geschäfts-Kommunikation hinaus geht zu mobilen Apps: Die Applikationen auf Smartphone, Tablet und Co. nutzen 70 Prozent der unter 40-Jährigen Geschäftsführer und immerhin 25 Prozent der über 50-Jährigen. Ob ortsbezogener Kundenservice, Einsatz in der Near Field Communication oder beschleunigte Prozess- und Datenabwicklungen für Außendienstler – die mobilen Business-Anwendungen bringen ebenso großes Potential im Einsatz für alltägliche Kunden-Kommunikation und Dienstleistungen der Mitarbeiter mit.
What are the financial markets and what purposes do they serveA f.pdfAnkitchhabra28
What are the financial markets and what purposes do they serve?
A financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives. Financial
markets are typically defined by having transparent pricing, basic regulations on trading, costs
and fees, and market forces determining the prices of securities that trade.
Financial markets can be found in nearly every nation in the world. Some are very small, with
only a few participants, while others - like the New York Stock Exchange (NYSE) and the forex
markets - trade trillions of dollars daily.
Investors have access to a large number of financial markets and exchanges representing a vast
array of financial products. Some of these markets have always been open to private investors;
others remained the exclusive domain of major international banks and financial professionals
until the very end of the twentieth century.
What are financial intermediaries? How do these intermediaries function in the economy?
Financial intermediaries channel funds from people who have extra money or surplus savings
(savers) to those who do not have enough money to carry out a desired activity (borrowers). A
financial intermediary is typically an institution that facilitates the channeling of funds between
lenders and borrowers indirectly. That is, savers (lenders) give funds to an intermediary
institution (such as a bank), and that institution gives those funds to spenders (borrowers). This
may be in the form of loans or mortgages. Alternatively, they may lend the money directly via
the financial markets, which is known as financial disintermediation.
Financial intermediaries help circulating money in the system. If money is staying idle (e.g.
under your bed pillow or as gold in your locker) then it is not good for the economy. Money
must keep changing hands. If you look at this from a different angle: if nobody buys skin
whitening creams then who will feed the families of those chemists who work there And the
businessman who supplies raw material to that factory? They promote the habit of savings.
Individual can use that saved money in bad times / emergency and earn profit in between. A
needy businessman will easily get loans.
When businessmen can get loans easily at a reasonable cost, they’ll start new business, expand
existing business, hire more employees, increase production of goods / services = GDP
increases. When people are making more money, they spend more money. A family goes to
restaurant, poor waiter makes money. Family hires maid, gardener, driver. Family buys new car,
mobile or bike- it breaks down, the repairman makes money. That’s how money trickles down
from rich people to poor people.
What is a federal government budget deficit? What is the national debt? How does a budget
deficit affect the economy?
The federal government budget deficit is when the Federal spending is greater than the tax
reve.
W E B E X T E N S I O N 5BA Closer Look at TIPSTreasury I.docxdickonsondorris
W E B E X T E N S I O N 5B
A Closer Look at TIPS:
Treasury Inflation-
Protected Securities
I nvestors who purchase bonds must constantly worry about inflation. If inflation turnsout to be greater than expected, bonds will provide a lower than expected real return.To protect themselves against expected increases in inflation, investors build an infla-
tion risk premium into their required rate of return. This raises borrowers’ costs.
In order to provide investors with an inflation-protected bond, and possibly to
reduce the cost of debt to the government, on January 29, 1997, the U.S. Treasury
issued $7 billion of 10-year inflation-indexed bonds called Treasury Inflation-
Protected Securities (TIPS). Since then, the Treasury has continued to offer TIPS
with original maturities up to 30 years. To see how TIPS work, let’s take a closer
look at the TIPS that were auctioned on April 7, 1999. These TIPS mature on April
15, 2029, and pay interest on April 15 and October 15 of each year. The bonds have
a fixed coupon rate of 3.875%, but they pay interest on a principal amount that
increases with inflation. At the end of each 6-month period, the principal (originally
set at par, or $1,000) is adjusted by the inflation rate. For example, on April 15, 1999,
the Reference CPI (as defined by the U.S. Treasury) was 164.39333. At the time of the
first coupon payment on October 15, 1999, the Reference CPI was 166.88065. The
Index Ratio is defined as the ratio of the current CPI and the original CPI:
Index Ratio ¼ 166:88065=164:39333 ¼ 1:01513
In essence, this Index Ratio measures the amount of inflation since the bond was first
issued. The inflation-adjusted principal is then calculated as $1,000 (Index Ratio) =
$1,000(1. 01513) = $1,015.13. So, on October 15, 1999, each bond paid interest of
(0.03875/2)($1,015.13) = $19.67. Note that the interest rate is divided by 2 because in-
terest on these (and most other) bonds is paid twice a year.
By April 15, 2000, a bit more inflation had occurred, and the inflation-adjusted
principal was up to $1,029.04 (based on the Index Ratio at that time).1 On April 15,
2000, each bond paid interest of 0.03875/2 × $1,029.04 = $19.94. Thus, the total re-
turn during the first year consisted of $19.67 + $19.94 = $39.61 of interest and
$1,029.04 – $1,000.00 = $29.04 of “capital gains,” or $39.61 + $29.04 = $68.65 in to-
tal. Thus, the total rate of return, ignoring compounding, was $68.65/$1,000 =
6.865%. Therefore, if you had been able to buy this bond for $1,000, you would
have received a real rate of return of 3.875%.2
This same adjustment process will continue each year until the bonds mature on
April 15, 2029, at which time they will pay the adjusted maturity value. Thus, the
1The U.S. Treasury publishes the Reference CPIs and Index Ratios each month. For the April 2000 va-
lues, see http://www.treasurydirect.gov/instit/annceresult/tipscpi/2000/of042000cpi.pdf.
2The auction price usually differs slightly from the $1,0 ...
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Bonds are one of the three main generic asset classes.
Bonds are a long-term liability with a specified amount of interest and specified maturity date. Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities.
2. Bonds simply are terms for loans that you give to the Federal
Government, State Government, Companies etc.
It's a document issued by the Borrower (e.g the Government)
stating the amount borrowed from you (Bond holder), the periodic
interest rate (called coupons) , the tenure or years to repay the
original loan (the principal) on a stipulated date (the maturity date)
Aside banks, as an individual you may have some money you wish
to save. You may say you have just N10k to save a month from
your salary and wonder how that helps the government. Imagine
that there are 1million people with N10k to save, that transcends to
N10b already.
Also, have in mind that the money the banks actually lend are
money deposited by you and I. So you and I are the major source
of money for government, banks, corporations etc. That is why they
tax us, pursue us to open accounts, and pressure us to buy their
goods.
What are
Bonds?
Why invest
in Bonds as
an
Individual?
Between
Bonds and
Equities
Whilst both are investment securities they are different in their nature.
When you buy shares, you buy right to earn a dividend of a company.
Meaning that you only get dividends when the company decides to pay
you.
For Bonds, the borrower or issuer (Government or company) MUST pay
you interest (coupon) at the stated date. In other words, owners of
shares are equity holders, whilst owners of bonds are debt holders.
3. Bond issuers typically attach a coupon (interest rate) to the Bonds. For
instance, Government can issue a bond for say N10b, 10year bonds at a
coupon of 12%pa. This means they want to borrow N10b from the public and
are willing to pay 12% interest rate for it per annum for a period of 10years.
Usually they pay you the principal amount at maturity, at the end of 10years
and sometimes they can have the option to “call back" which basically
means they can pay you the principal before the 10 year period. Bonds with
"Call Back" are always clearly stated in the prospectus. So, if you borrow
them N10k, you form part of many others who must have lent them as well.
They pay you N1200 per annum and pay you the N10k a the end of 10
years.
Well, you may think of it as low but the if you put that same amount in a
Savings Account of bank you would probably get N400 and stand the risk of
loosing it if the bank collapses. Besides if it is N1m you invest then that's
N120k every year, N10m is N1.2m and N100m is N12m per annum.
Unlike equities, bonds are secured, Government bonds are mostly secure and are guaranteed
by the full faith and credit of the Government. Even if there is a war, the bond must be repaid
after the war is over.
How
Bonds
operate?
About
Bonds
yield
Bond yields are interest on traded bonds. Since bonds are tradable,
yield is a figure that shows the return you get on a bond.
Bonds Yield = coupon amount/price
So, if Government pays a coupon of 12%pa on your N10k bond and
supposing the value was N9k at the time it is sold, then whomever buys it will
earn N1200 on the N9k he paid out. Thus his yield is 1200/9000 = 13.33%.
So he gains an extra 1.33% and still gets another N1000 if he decides to wait
till the maturity of the bond. The yield of a bond moves in opposite direction
to its value. As the value dropped to N9k the yield increased to 13.33%.
4. Bonds can be purchased either through the Primary or Secondary
market.
The primary market is were you buy bonds that have just been offered by the
seller like the Government (just like buying a public offer).
The secondary market is where you buy tradable bonds that is, bonds from
the bonds market (just like buying shares in the stock market). Bonds traded
in the secondary market are usually done on the floor of the Nigerian Stock
Exchange or Over the Counter (OTC) through the PDMM (Primary Dealer
Market Maker)
PDMM are operators licensed to buy and sell bonds. Most of them are
banks. They also have discount houses who sell as well. You get the
application form from them, fill it, include your cheque in full for the amount
you wish to invest. You can invest as much as you can, from N10k to N1b
depending on your capabilities financially. But the minimum is N10k and
multiple of N1k thereafter.
The bonds purchased are confirmed through issuance of depository or
issuance of certificates. The depository is the CSCS (Central Security
Clearing System) an online storage for securities such as shares and bonds.
Interest on Government Bonds are paid Semi annually. For example in June
and December or in January and July. Payment is through issuance of
cheque sor warrants, similar to the dividend warrants you get for shares.
Interest rates can be fixed or floating. Fixed is when they will pay you
12%pa then it is 12%pa you get till the end if the maturity. Floating means
they may pay you an amount that is linked to a rate that moves with the
market. For example they might say Nibor (10% plus 2%. Meaning the rate is
benchmarked. The Nibor is a rate that banks use to lend money to each
other and it always changes in response to market conditions and is thus the
floating rate.
The Bonds
deal…
How to
invest?
5. EXPLORE THE BONDS MARKET TODAY
THANK YOU
“BUYING BONDS OFFER YOU HUGE OPPORTUNITIES FOR SIZEABLE
PROFITS WHILST YOUR MONEY IS SECURED, BUT AVOIDING BONDS
ALTOGETHER IMPLIES MISSING OUT ON THE OPPORTUNITY TO MAKE
PROFITS”
Kolawole Salis
(kola.salis@leadadvisorypartners.com)