Chapter 15 Investing in Bonds

However, this is not the case with WorldCom, as the company apparently has good reputation and can get the required financing through loans. However, with bonds there is less flexibility to resolve any future issues and there is always the pricing risk, but one pro of a bond is that there is no periodical principal payment.

Bonds require a minimum amount of money to purchase and a minimum length of time to hold on to the bond.

| Objectives are integrated within TV, print and direct mail. Internet focuses on building consumer relationships rather than getting awareness. Bonds did not show any objective on its package design.

1. Briefly explain why many corporations prefer to issue callable long-term corporate bonds rather than noncallable long-term bonds.

Overall. The FASB Codification Topic 320: Investments-Debt and Equity Securities is included under the financial statement asset section and offers guidance on investment instruments that represent either a creditor relationship (debt) or an ownership interest (equity) and provides standards for reporting such investments according to generally accepted accounting principles (GAAP) (FASB ASC 320-10-05-2, 2016).

TOBs are synthetically created short-term tax exempt instruments. A TOB sponsor will buy a portfolio of fixed rate, long term municipal bonds with ratings between AA-AAA and combine them with an interest rate swap to create short term tax exempt floating rate bonds.

Bond Ratings in Capstone are evaluated by comparing current debt interest rates with the prime number. All bonds are issued on a 10 year note; bonds that are issued to companies will pay a 5% brokerage fee. How do you read a bond the first three digits of the serial number on a bond indicates the interest rate example 14.7S2018 the interest rate would be 14.7% and is due December 31, 2018.

Yes, irrespective of the cons, sinking fund is money/ negotiable securities put away separately intended for redeeming debt. Bonds subsidized (backed) by sinking fund(s) are less probable of defaulting on principal of interest payments and repayment, generating safer investments and more attractive towards risk-averse investor(s). Firms often employ sinking funds when it desires to retire bond issue in installments or

Bond’s with collateral will have lower coupon rate as bondholders have claim on collateral no matter what. It provides an asset which lowers default risk. Downside to company is that this collateral cannot be sold as an asset and needs to maintain it.

It provides an evaluation of the bond issuer’s financial strength and ability to pay back the bond’s principle and interest. The bond rating also provides investors with some sense of security when investing in a particular firm. A higher bond rating implies a lower likelihood for the firm to default. Investors would feel more secured investing in such a bond, thus demanding a relatively lower rate of return. As such, high rated bonds enable the issuer to enjoy a lower cost of borrowing. A lower bond rating, on the other hand, serves as a negative signal to investors on the firm’s ability to repay debt obligations.

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.

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.

This research has important implications for Buy and Maintain fixed income investing. While there are many more attributes to take into account when choosing fixed income securities (multiple issues per issuer based on tenor, subordination, etc.), each fixed income security has arguably less idiosyncratic factors driving its return than an equivalent equity security. When building a Buy and Maintain portfolio that is resilient to various economic environments and stages of the business cycle, one must therefore draw from the entire global fixed income market; and, the global bond universe is huge. But how many issuers are needed to achieve a well diversified Buy and Maintain portfolio?

Structured finance, which is another word for securitization, is an alternative, non-standard way of raising money by creating

Allie measured her foot and it was 21cm long, and then she measured her Mother's foot, and it was 24cm long.