secured bond

Examples of secured bond in the following topics:

• Types of Bonds

  • The most common secured bonds.
  • This bears the owner's name on the bond certificate and in the register of bond owners kept by the bond issuer or its agent, the registrar.
  • A term bond matures on the same date as all other bonds in a given bond issue.
  • Serial bonds in a given bond issue have maturities spread over several dates.
  • Differentiate be the various types of bonds including secured and unsecured, registered and unregistered and convertible

• Other Types of Bonds

  • Other bonds include register vs. bearer bonds, convertible bonds, exchangeable bonds, asset-backed securities, and foreign currency bonds.
  • Treasury Inflation-Protected Securities (TIPS) and I-bonds are examples of inflation linked bonds issued by the U.S. government.
  • Asset-backed securities are bonds whose interest and principal payments are backed by underlying cash flows from other assets.
  • Examples of asset-backed securities are mortgage-backed securities (MBS's), collateralized mortgage obligations (CMOs), and collateralized debt obligations (CDOs).
  • The main examples of subordinated bonds can be found in bonds issued by banks and asset-backed securities.

• The Nature of Bonds

  • A bond is a debt security, under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon) and/or repay the principal at a later date, termed the maturity.
  • The main categories of bonds are corporate bonds, municipal bonds, and U.S.
  • Bonds and stocks are both securities, but the major difference between the two is that (capital) stockholders have an equity stake in the company (they are owners), whereas bondholders have a creditor stake in the company (they are lenders).
  • A bond is a financial security that represents a promise by a company or government to repay a certain amount, with interest, to the bondholder.
  • Distinguish the various types of bonds from other types of securities

• Information Costs and Bond Prices

  • Information costs influence the bond prices and interest rates.
  • If investors need time and money to acquire information on securities, then they pay a greater information cost.
  • For example, investors know both U.S. government securities and corporate bonds from large corporations well, and the securities have the lowest information costs.
  • We depict the bond markets in Figure 3.
  • High information cost bonds are not as attractive as an investment, so investors buy fewer bonds, reducing bond prices and raising interest rates.

• Taxes and Bond Prices

  • For example, the U.S. government bonds have a lower risk of default and higher liquidity than municipal bonds, whereas municipal bonds are the state and local government bonds.
  • However, the interest rates of municipal bonds are consistently lower than U.S. government bonds for the last 50 years because investors do not pay U.S. taxes on the interest they earn on municipal bonds while they pay U.S. government taxes on U.S. government securities.
  • If you bought municipal bonds, subsequently, you would earn a lower interest than U.S. government securities.
  • On the other hand, the taxed bonds are not as attractive as an investment, so investors buy fewer bonds, causing bond prices to fall and interest rates to rise.
  • Therefore, municipal bonds have a lower interest rate than U.S. government bonds.

• Answers to Chapter 9 Questions

  • Investors prefer to hold liquid securities.
  • Investors prefer to invest in securities that entail low information costs.
  • Investors prefer to invest in securities that have lower taxes.
  • Term structure of the interest rates is an entity offers a large variety of securities with different interest rates.
  • Thus, the securities have the same risk, liquidity, information costs, and taxes.

• Liquidity and Bond Prices

  • For instance, U.S. government securities are widely traded and are the most liquid.
  • Thus, both bond markets have the identical equilibrium bond price, P*, and hence, the exact liquidity.
  • Then the secondary markets expand for government bonds boosting the liquidity for these securities.
  • Thus, the government bond prices rise, which reduces the interest rate for government bonds.
  • On the other hand, the corporate bond prices decrease, raising the market interest rate for corporate bond.

• Advantages of Bonds

  • It is a debt security under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon).
  • Most individuals who want to own bonds do so through bond funds.
  • Bonds have a clear advantage over other securities.
  • There are also a variety of bonds to fit different needs of investors, including fixed rated bonds, floating rate bonds, zero coupon bonds, convertible bonds, and inflation linked bonds.
  • It is a debt security under which the issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay them interest (the coupon).

• Bond Valuation Method

  • A bond's value is measured by its sale price, but a business can estimate a bond's price before issuance by calculating its present value.
  • The bond's contract rate is another term for the bond's coupon rate.
  • If the market rate is greater than the coupon rate, the bonds will probably be sold for an amount less than the bonds' face value and the business will have to report a "bond discount. " The value of the bond discount will be the difference between what the bonds' face value and what the business received when it sold the bonds.
  • If the market rate is less than the coupon rate, the bonds will probably be sold for an amount greater than the bonds' value.
  • If the market and coupon rates differ, the issuing company must calculate the present value of the bond to determine what price to charge when it sells the security on the open market.

• Redeeming at Maturity

  • The journal entry to record the retirement of a bond: Debit Bonds Payable & Credit Cash.
  • A maturity date is the date when the bond issuer must pay off the bond.
  • Bonds can be classified to coupon bonds and zero coupon bonds.
  • For coupon bonds, the bond issuer is supposed to pay both the par value of the bond and the last coupon payment at maturity.
  • Debt securities can be classified as "held-to-maturity," a "trading security," or "available-for-sale. "