CSC 课程辅导(2)

jenny1

Determinants of Bond Yields

    interest rates are determined in the capital markets by the supply/demand for capital
    a bond investor wants to be compensated for        - inflation
    -    risk
    -    earn a return
    - the yield for a specific bond        =        real interest rate
                                                            +    inflation premium
                                                            +    default risk premium
                                                            +    maturity risk premium

real interest rate & inflation premium       is about equal or great than  90 day Tbill rate
default risk premium        =    (yield on this bond  -  yield on fed bond of same maturity)
maturity risk premium        =    (yield on this bond - yield on bond of same issuer but diff maturity)

Yield Curve     = relation between bond yield & time to maturity at a point in time
Long Term Debt

    promise to pay interest (coupon) & repay principal

        par             - face value - amount paid at maturity - base of $100
        discount         - price below $100,  premium - price above $100
        denomination          - face value, $1,000, $10,000 or larger
        term to maturity      - remaining life of bond
        liquid              - good trading volume

     negotiable         - in deliverable form
        marketable         - ready market

    Trustee    - represents interests of bondholder   
-    ensures that interest paid, protective covenants maintained, take action if not
-    administer sinking fund provisions

Trust Deed    - sets forth all protective covenants (restrictions) and requirements of the bond issue
-    protective covenants - to safeguard bondholder
Government Bonds
    Marketable    - fed gov't is largest issuer in Cdn bond market   - mostly non-callable
- introduce Real Return Bonds in '91 - interest & prin repayment based on inflated value of original principal
    CSB    - cash at bank any time - no secondary market - only purchased by Cdns
- maximum purchase limits        - must be registered
-    regular interest & compound interest
- Canada Premium Bond
    Tbills    - short term gov't note   - most significant money market instrument
- sold at discount & mature at par    - difference is taxable as interest income
- sold in auction by BOC  - purchased by large institutions & resold to clients in smaller denominations
    Provincial    - borrow extensively in foreign markets  - also issue Tbills & Provincial Savings Bonds
    bond quality factors    -

    Municipal    - usually using serial bonds
    credit quality factors -
TYPE of Bond by Security
Mortgage Bonds    - secured by specific fixed assets

Collateral Trust Bond    - secured by securities

Equipment Trust Certificate    - secured by equipment

Debentures        - unsecured, security is general creditworthiness of company

Subordinate Debentures    - unsecured, junior to another security
Posted by Utopia at 5:20 PM 0 comments
CSC 课程辅导(1)
BOND PRICES & INTEREST

Bond    - borrower promises to pay interest & repay principal at maturity

Coupon    - contractual rate of interest - borrower must pay this every year until bond matures
        --- does not change if general interest rates change

Bond Prices    - once a bond is sold, the price of the bond will change as interest rates change
-bond prices change so that the bond sold at that price will provide a return equal to current market yields
eg.: bond originally sold for $100 with 7% coupon， market yields for same type of bond are now 9%。 this bond is less valuable because it pays a lower rate -> therefore its price falls

Yield    -rate of return earned if buy bond at current price

Bond prices move inversely to changes in market interest
Posted by Utopia at 5:04 PM 0 comments
Wednesday, May 12, 2010
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Posted by Utopia at 7:23 PM 0 comments
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