Notes On Bonds And Debt Investment

Although this investment class can be considered the most conservative of the three, the low yield of government bonds in the past 10 years does not lend a comparative metric against many other investment opportunities (Jacobs, 2012). The fixed rate of these instruments allows for a guaranteed return, but should only be utilized at a point in an investing cycle when risk is higher than potential income growth. The 25% allocation that is invested in this class is positioned to provide a long term guaranteed investment, with the possible that these lower rates will not rise significantly in the next few years.

The bonds can be issues with fixed interest or variable rate interest, each of which has its advantages and there disadvantages.

Bonds are a debt investment, meaning the purchaser of the bond is loaning money to the company or government for a set period. They have a fixed interest rate, meaning the investor knows how much interest will be earned on the loan since the rate will not change.

Bonds are a debt investment where investors lend money to a company or entity (i.e. government). Some features of a bond are they have a face value, have a maturity date, used to raise funds, some are tax exempt, risk of default if company goes under, and bought for less than maturity value. One example happened in America during World War II when the government started selling war bonds to help fund the war and to help take money out of circulation to help control spending. At the time you could buy a $25 bond for $18.75 that would mature in 10 years. They give a yield of only 2.9%. There are three main categories of bonds 1) corporate, issued by companies 2) municipal bonds,

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)

The CAT bonds are event-linked securities that pays off on the occurrence of a defined catastrophic The risks of catastrophe are shared among investors and in return they receive a rate of investment. When certain catastrophic event occurs, such as bushfire and flood mentioned above, the investor will loss their investment and the issuer receive the money to cover their loss (Cummins 2008). The ability to access the capital markets is an advantage of the CAT bonds and the bonds are attractive to investors because of the low correlations to financial variables, hence they are valuable for diversification (Litzenberger et al., 1996). Also, Harrington and Niehaus (2003) argue that another important advantage of CAT bonds as a financing mechanism is the low corporate tax costs incurred compared to equity financing and the bonds are subject to less credit risks. However, for CAT bonds, problem exists for the difficulty in determining the price or premium, giving that information regarding catastrophic events may be insufficient in most

Inflation is another term for power risk. It’s the cash that flows from an investment but won’t be worth as much in the future.

c. T-bond rate might be considered to be a better estimate of the risk-free rate because of longer maturity terms of T-bonds (more than 10 years) and regular payments made to the holder of T-bond. T-bill is a short-term debt obligation supported by the U.S. government with a maturity of less than one year. T-bills are distributed in denominations of $1,000 up to a maximum purchase of $5 million and typically have

1. In the private sector, real assets consist of both the tangible and intangible capital

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.

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 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.

Until Wednesday April 8, 2015 no country had ever offered a ten-year bond that gave investors a yield of less than zero percent. That was until Switzerland offered ten-year bonds that lenders are paying to hold. While many countries like the United States Federal Reserve are preparing to increase interest rates, the European Central Bank is driving them down. The decreasing interest rates have forced countries like Switzerland to offer negative yields on their bonds in order to keep their currency from increasing too far about their Eurozone (European nation) neighbors. However, this notion challenges the very fundamentals of investing in the bond market. Numerous countries throughout the Eurozone and Europe are also seeing their yields turning negative. Whereas, various European countries’ rates have only slightly fallen below zero, others continue to fall deeper into negative territory. It appears that the time value of money (one of the fundamental cores of investing) seems to count for very little throughout the European bond market.

Amcor limited use different sources such as bank overdrafts, promissory notes, Eurobonds and Swiss bonds that mature at different times to finance their operations and they do this to diversify their risk.

1. Three month treasury bills generally fluctuate more than the other two. While Corporate Bonds are generally the ones which give the highest interest rate.