Types of Bonds
Posted on Oct 10, 2000 08:15:27 AM
Bonds, as well as Bank Deposits reflect the debt ratio. However, both investment grade bonds offer more opportunities for investment as compared with deposits.
Bonds can be purchased either at the initial offering, or on the secondary market. Since there is a secondary market, respectively, they can sell without waiting for the maturity date. Which is very convenient.
Bonds are discount and coupons. In the first case, your income consists only of the difference between buying and selling. In the second, added to it resulting coupon for time of possession bond. Coupons may be paid quarterly, every six months or once a year.
Bonds are usually quoted as a percentage of par value excluding accrued interest (accrued coupon interest). That is, if the bond price of 100, then it means that it is sold at par. There may be situations when the coupon bond is sold more expensive than face value. This occurs when current interest rates are lower than they were in placement. The reason for this is that the price and yield bonds have an inverse relationship. When interest rates fall, the price increases. And vice versa, respectively. If interest rates rise, the price falls.
Bond issuers act and the state and the company. The higher the reliability and creditworthiness of the borrower, the lower the yield on its bonds. Also, generally, the longer the maturity, the higher the yield. However, sometimes this rule there are exceptions. And the yield of short-term issues of more long-term. In such cases we say that the yield curve “inverted”. The yield curve, this dependence yields on bonds of maturity for the same issuer.
The issue prospectus of bonds may contain a clause granting the right to the issuer or the investor (sometimes as both simultaneously) on the early repayment of the bond. That is, in this case, de facto, we have a bond with a “built-in” option call, if the right of early repayment is the issuer, or an option put, if the right of early repayment is an investor. Accordingly, in one and the same issuer, the yield on bonds with a “built-in” option call bude higher than for bonds with no “embedded” option, which in turn will be higher than that of bonds with a “built-in” option put.
As you can see, bonds, a very difficult financial instrument. And I is not all of them spoke. However, the diversity of issuers and issues of environment allows you to choose an appropriate bond to its portfolio of almost any investor. Also, do not forget that long-term bonds is very suitable for speculation, due to the relatively large variability of prices, even small changes in yield.
bond, redemption, the case price, the issuer, the option, yield,- Bond and its response
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