Ch 7 Valuation and Characteristics BONDS of c 2002. Prentice Hall. Inc
Ch. 7: Valuation and Characteristics of © 2002, Prentice Hall, Inc
Characteristics of Bonds o Bonds pay fixed coupon(interest) payments at fixed intervals(usually every 6 months)and pay the par value at maturity
Characteristics of Bonds •Bonds pay fixed coupon (interest) payments at fixed intervals (usually every 6 months) and pay the par value at maturity
Characteristics of Bonds o Bonds pay fixed coupon(interest) payments at fixed intervals(usually every 6 months)and pay the par value at maturity. SISISISISI SHSM 0
Characteristics of Bonds •Bonds pay fixed coupon (interest) payments at fixed intervals (usually every 6 months) and pay the par value at maturity. 0 1 2 . . . n $I $I $I $I $I $I+$M
example: ATT6/2 29 par value=$1000 coupon=6.5% of par value per year. S65 per year($32.50 every 6 months). maturity=28 years(matures in 2029). issued by at&t
example: ATT 6 1 /2 29 • par value = $1000 • coupon = 6.5% of par value per year. = $65 per year ($32.50 every 6 months). • maturity = 28 years (matures in 2029). • issued by AT&T
example: ATT6/2 29 par value=$1000 coupon=6.5% of par value per year. S65 per year($32.50 every 6 months). maturity=28 years(matures in 2029). issued by at&t. s32.50S32.50S32.50S3250S32.50S3250+$1000 0 2 28
example: ATT 6 1 /2 29 • par value = $1000 • coupon = 6.5% of par value per year. = $65 per year ($32.50 every 6 months). • maturity = 28 years (matures in 2029). • issued by AT&T. 0 1 2 … 28 $32.50 $32.50 $32.50 $32.50 $32.50 $32.50+$1000
Types of bonds Debentures- unsecured bonds Subordinated debentures -unsecured “ Junior”debt Mortgage bonds-secured bonds Zeros- bonds that pay only par value at maturity; no coupons. Junk bonds -speculative or below- investment grade bonds; rated bb and below. High-yield bonds
Types of Bonds • Debentures - unsecured bonds. • Subordinated debentures - unsecured “junior” debt. • Mortgage bonds - secured bonds. • Zeros - bonds that pay only par value at maturity; no coupons. • Junk bonds - speculative or belowinvestment grade bonds; rated BB and below. High-yield bonds
Types of bonds Eurobonds- bonds denominated in one currency and sold in another country. Borrowing overseas). example- suppose Disney decides to sell S1.000 bonds in France. These are U.s. denominated bonds trading in a foreign country. Why do this?
Types of Bonds • Eurobonds - bonds denominated in one currency and sold in another country. (Borrowing overseas). • example - suppose Disney decides to sell $1,000 bonds in France. These are U.S. denominated bonds trading in a foreign country. Why do this?
Types of bonds Eurobonds- bonds denominated in one currency and sold in another country. Borrowing overseas). example- suppose Disney decides to sell S1.000 bonds in France. These are U.s. denominated bonds trading in a foreign country. Why do this? If borrowing rates are lower in france
Types of Bonds • Eurobonds - bonds denominated in one currency and sold in another country. (Borrowing overseas). • example - suppose Disney decides to sell $1,000 bonds in France. These are U.S. denominated bonds trading in a foreign country. Why do this? – If borrowing rates are lower in France
Types of bonds Eurobonds- bonds denominated in one currency and sold in another country. Borrowing overseas). example- suppose Disney decides to sell S1.000 bonds in France. These are U.s. denominated bonds trading in a foreign country. Why do this? If borrowing rates are lower in france, To avoid seC regulations
Types of Bonds • Eurobonds - bonds denominated in one currency and sold in another country. (Borrowing overseas). • example - suppose Disney decides to sell $1,000 bonds in France. These are U.S. denominated bonds trading in a foreign country. Why do this? – If borrowing rates are lower in France, – To avoid SEC regulations
The bond denture The bond contract between the firm and the trustee representing the bondholders Lists all of the bond's features coupon, par value, maturity, etc. Lists restrictive provisions which are designed to protect bondholders Describes repayment provisions
The Bond Indenture • The bond contract between the firm and the trustee representing the bondholders. • Lists all of the bond’s features: coupon, par value, maturity, etc. • Lists restrictive provisions which are designed to protect bondholders. • Describes repayment provisions
