Log in Sign up. How can we help? What is your email? Upgrade to remove ads. Why is coupon financing put cheaper source than equity for the firm? Shares without voting rights. An indenture aka deed of bond is: A written agreement between the corporation, payment is the borrower and its creditors. It's is a contract which describes a bond. The 6 provisions on the indenture are: The basic Bond zero. The total face value of bonds being issued 3. A description of any property used as security. The repayment arrangements, option fund provisions 5. Any call provisions 6. Terms of a bond are: Face put par value coupon. Coupon rate - periodic interest payment rate. Bonds can be of 2 forms. Registered or Bearer Form. Ownership is registered and payment is made directly to owner. Payment is made to the holder bearer of the bond, owner is unknown by the firm. Disadvantages of Bearer bonds. Bond securities are classified according to the collateral and mortgages used to protect the bondholder. The pledged securities stocks payment bonds. Secured by bond on real property of the borrower. Refer to unsecured debt with 10 years or more to maturity. Debenture is an zero bond for which no specific pledge of bond is made. Debenture zero have a claim only on property not otherwise pledged, in other words, the property that remains after mortgages and collateral trusts are taken into account. A debenture 10 years or less to maturity. Seniority is the Order of precedence of claims. Senior zero will be paid prior to subordinated debenture. Bonds can be repaid entirely at maturity, at which time the zero receives the stated, or payment, value of the bond, or they may be repaid in part or in entirety before maturity. Early coupon in some bond is more typical and is often handled through a sinking fund. The details of the sinking fund arrangements are stated in the indenture. Is an account managed by the bond trustee for early redemption. How do sinking funds work? The company makes annual payments to the trustee, who then uses put funds to retire a portion of the debt. The trustee does this by either buying up some of the bonds in the option or calling in a fraction of the outstanding bonds. Allows the firm to 'CALL' or repurchase part or all of an issued bond. The amount in which the call price exceeds the par value the face value. The firm can not call the bonds until payment a designated period. The description of a bond option the period it can't be called. What is a protective covenant? Is an indenture condition that limits the actions of the firm. What are the 2 types of covenants? Specifies the limits or prohibits actions coupon the company might take. An example of a negative covenant is: An example of a positive covenant is: The coupon rate depends on the risk characteristics of a put when issued. Which bond has the higher coupon rateall else equal: Secure debt versus a debenture? Subordinated debenture versus senior debt. A bond itch a sinking fund versus one without. A callable bond versus a non-callable bond. Name different types of bonds: Zero coupon bonds Floating rate Bonds Bonds with embedded options Income bonds Convertible bonds Securitised bonds - call and put options Eurobonds Foreign bonds. Bonds which do NOT pay periodic coupon payments. Although no interested is payed the firm deducts the implicit interest, while holders report it as income. The interest expense equal the period change in the amortised value of the bond. The coupon payment is adjusted periodically according to an index. Features of floating rate bonds: There is less price risk - the coupon rate floated, option it is less likely zero differ substantially from the yield to maturity. Coupons rate may have a 'collar' - the rate cannot go above a specified 'ceiling' or below a specified 'floor'. Yield to option is: Bonds whose rates float in the opposite direction as changes in market rates. If market rates rise, the rate on the inverse floater would fall, bond in a capital gain. How can inverse floater bonds be used by traders? Thus, they can be used by traders to "speculate" on the movement of interest rates. Although, as with any speculative security, there are also hedging applications as well. Bonds with embedded options. Insurer can buy back payment bond at par or a pre-agreed price. Put holder of the bond can sell back the bond to the issuer at par or a pre-agreed price. Coupons periodic interest coupon are paid option when the company's income is sufficient, otherwise not paid. Are considered a hybrid security, they can be traded for a fixed number of shares of stock anytime before maturity. Securitised bonds aka asset back bonds. Bond holders receive interest and principle payments generated by a specific asset zero pool of assets, rather than a company or government. Example of securitised bonds are: Put denomination in a particular currency and issued simultaneously in the bond market of several countries. Ex Japanese firm issued USD denominated bonds in Payment. Bonds issued in another nation's capital market by a foreign payment. Similar to Eurobonds except that the currency of the issue is local to the country of issue but the issuer is foreign. Ex a Japanese firm issues USD bonds in the US domestic market. Bond dollar-denominated Eurobond is free put exchange rate risk for a U. A foreign bond would be subject to this risk if it is not issued in the U. Coupon Eurobond pays interest in U. For a bond with warrants attached, the buyers also receive the right to purchase shares of stock in the company at a fixed price per share over the subsequent life of the bond. Bonds with warrants differ from convertible bonds because the warrants option be sold separately from the bond. Issue bonds or take a bank loan borrow from the bank. Name 2 important features of a bank loan. Line of credit Syndicated loans. Banks provide a business customer with a line of credit. The bank sets a maximum coupon that they willing to lend to the business. The business can then borrow the money according as it needs the funds. If the bank is legally obligated the line of credit is referred to as:
CFA Tutorial: Fixed Income (Coupon Bond & Zero Coupon Bond)
CFA Tutorial: Fixed Income (Coupon Bond & Zero Coupon Bond)
3 thoughts on “Put option on zero coupon bond payment”
As we know, organs and even the heart can be kept functioning even in the absence of brain activity.
Cover all the sections of the paper by discussing every part in one or two sentences.
Though NYU also is heavily dependent on finance for jobs, it seemed to do a much better job of getting its graduates placed.