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Keown, Martin, Petty - Chapter 7
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ຫໍສະໝຸດ Baidu
Mortgage Bond
Mortgage bond is secured by a lien on real property.
Typically, the value of the real property is greater than that of the bonds issued.
All of the return (for zero coupon bond) or most of the return (for very low coupon rate bond) comes from appreciation of the bond.
Keown, Martin, Petty - Chapter 7
Keown, Martin, Petty - Chapter 7
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Debentures
Debentures are unsecured long-term debt.
For issuing firm, debentures provide the benefit of not tying up property as collateral.
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Junk Bonds (High-Yield Bonds)
Junk bonds are bonds that have high risk of default and are rated BB or below by Moody’s and Standard & Poor’s.
3. Define the term value as used for several different
purposes. 4. Explain the factors that determine value. 5. Describe the basic process for valuing assets. 6. Estimate the value of a bond. 7. Compute a bondholder’s expected rate of return. 8. Explain three important relationships that exist in
Issuers or Borrowers: Corporations, Government, State and Local Municipalities.
Keown, Martin, Petty - Chapter 7
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Types of Bonds
Debentures Subordinated Debentures Mortgage Bonds Eurobonds Zero and Very Low Coupon Bonds Junk Bonds (High-Yield Bonds) Convertible Bonds
bond valuation.
Keown, Martin, Petty - Chapter 7
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2. Bonds
Bonds
Meaning: Type of debt or long-term promissory note, issued by a borrower, promising to its holder a predetermined and fixed amount of interest per year and repayment of principal at maturity.
Keown, Martin, Petty - Chapter 7
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Eurobonds
Securities (bonds) issued in a country different from the one in whose currency the bond is denominated.
For example, a bond issued by an American corporation in Japan that pays interest and principal in dollars.
There is a hierarchy of payout in case of insolvency.
The claims of subordinated debentures are honored only after the claims of secured debt and unsubordinated debentures have been satisfied.
Keown, Martin, Petty - Chapter 7
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Zero and Very Low Coupon Bonds
These bonds are issued at a substantial discount from the $1,000 face value with a zero or very low coupon rate.
Foundations of Finance
Arthur Keown John D. Martin J. William Petty
Valuation and Characteristics of Bonds
Chapter 7
1.Learning Objectives
1. Distinguish between different kinds of bonds. 2. Explain the more popular features of bonds.
For bondholders, debentures are more risky than secured bonds and provide a higher yield than secured bonds.
Keown, Martin, Petty - Chapter 7
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Subordinated Debenture
