Scribd Logo
Upload

Welcome to Scribd!

  • 27 views

    Bonds: General Classification

    Uploaded by

    Micko Lagundino
    Bonds are long-term financial instruments issued by governments or private companies to raise funds. They pay a fixed rate of interest over a set period of time. There are two main types of bonds: treasury bonds issued by governments and corporate bonds issued by private companies. Bonds are issued either through primary markets like initial public offerings or secondary markets. Investors earn returns from bonds through regular interest payments and price appreciation if sold before maturity. The key characteristics of bonds include interest rates, maturity dates, call and default provisions, and collateral.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd

    Bonds: General Classification

    Uploaded by

    Micko Lagundino
    27 views4 pages
    Bonds are long-term financial instruments issued by governments or private companies to raise funds. They pay a fixed rate of interest over a set period of time. There are two main types of bonds: treasury bonds issued by governments and corporate bonds issued by private companies. Bonds are issued either through primary markets like initial public offerings or secondary markets. Investors earn returns from bonds through regular interest payments and price appreciation if sold before maturity. The key characteristics of bonds include interest rates, maturity dates, call and default provisions, and collateral.

    Original Title

    Bonds.docx

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Bonds are long-term financial instruments issued by governments or private companies to raise funds. They pay a fixed rate of interest over a set period of time. There are two main types of bonds: treasury bonds issued by governments and corporate bonds issued by private companies. Bonds are issued either through primary markets like initial public offerings or secondary markets. Investors earn returns from bonds through regular interest payments and price appreciation if sold before maturity. The key characteristics of bonds include interest rates, maturity dates, call and default provisions, and collateral.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    27 views4 pages

    Bonds: General Classification

    Uploaded by

    Micko Lagundino
    Bonds are long-term financial instruments issued by governments or private companies to raise funds. They pay a fixed rate of interest over a set period of time. There are two main types of bonds: treasury bonds issued by governments and corporate bonds issued by private companies. Bonds are issued either through primary markets like initial public offerings or secondary markets. Investors earn returns from bonds through regular interest payments and price appreciation if sold before maturity. The key characteristics of bonds include interest rates, maturity dates, call and default provisions, and collateral.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    You are on page 1of 4

    Bonds

     Long-term financial instruments that issued by the government or private companies at a


    certain interest coupon to pay its long-term obligation.
     Phil.: Minimum: 5 years, Maximum: 30 years.
     US: Minimum: 10 years, Maximum: 30 years.
     US: They use the term “Treasury Notes” instead of “Treasury Bonds”

    General Classification

    1. Bearer – Transferrable
    2. Registered – Non-transferrable

    Types of Bonds

    1. Treasury Bonds
    2. Federal Bonds
    3. Municipal Bonds
    4. Corporate Bonds

    How bonds are issued? Through:

    1. Primary Market (IPO)


    2. Secondary Market

    Two ways to derive yield from bonds

    1. Interest
    2. Difference in purchase price and par value
    Types of bonds, discussed:

     Treasury Bonds
    Sold through:
    1. Direct/Private Placement
    2. Auctions

    Types:

    a. Stripped Treasury Bonds


    - “Strips”, stripped based on the payment of schedule payable periodically (Quarterly,
    semi-annual, annually, etc.)
    b. Inflation-indexed Treasury Bonds
    - When rate is
    Benign, we use quarterly
    Not constant, monthly
    Standard, annually
    c. Savings Bonds
    - 5-10 year, have lower but same computation with that of Treasury Bonds

     Federal Bonds – Not Applicable in the Philippines

     Municipal Bonds – Not Applicable

     Corporate Bonds
     Issued by private corporation for long-term capital requirement
    Disposed through
    a. Initial Public Offering (IPO) – Here, approval of SEC or Central Bank is needed
    b. Private Placement – No need to get approval from SEC and Central Bank

    Requirements:

    1. Underwriter
     Responsibilities:
    a. Study the feasibility of the proposed volume or amount of bonds to be issued.
    b. Propose the price viability

    2. Bonds Prospectus
     Legal document that contains the ff.
    a. Size of the proposed bonds offer
    b. Price of the bonds
    c. Purpose bonds offer
     Purpose:
    a. For securing/Application for bonds offer
    b. Serve as initial basis for prospective

    3. Bonds Trustee
     Private firms that has the oversight responsibility over the issuance and administration of
    bonds starting from its Initial Public Offering (IPO) until Maturity

    4. Bonds Indenture
     These are comprehensive legal documents that contain all the rights and obligations of of
    both issuer and bondholders
     This is basically the “Bible” of the bonds trustee
     Also includes the characteristics of bonds

    Characteristics of Bonds

    1. Sinking Fund Provisions


     Requirement of firms to maintain certain amounts of sinking fund for the payment of future
    obligation
     Certain amount of earnings is allotted to pay future obligations

    2. Protective Provision
     Example: X Corp. is limited only to certain amount of bonus to be given to its employees in order
    to protect the earnings of the company from excessive expenditures.

    3. Call Provisions
     Example: On periodic basis, a company is required to call back or redeem bonds earlier than the
    maturity period.

    4. Collateral
     There are 3 classifications of corporate bonds as to collateral:
    a. First Mortgage – collateralized by fixed assets (Land, Building, etc.)
    b. Chattel Mortgage – collateralized by personal assets
    c. Debentures – non-collateralized, based only on bond/credit ratings

    5. Convertibility
     Whether preferred or ordinary, bonds may be convertible into stocks

    6. Default Provisions
     Example, in case of nonpayment, how much could bondholders receive?
    7. Bonds Ratings
    Coupons (Indicators: Market rate or inflation rate)
    a. Fixed Coupon Rate
    b. Variable Coupon Rate
    Bondholders have the options to choose among the ff. indicative rate:
     Inflation Rate
     Prevailing Interest rate
     LIBOR (London Interbank Offer Rate)
    c. Low-rated or Zero-rated bonds

    You might also like