Embed Size (px)
Citation preview
BONDS
What are Bonds? A bond is a debt investment in which an investor loans
money to an entity (typically corporate or governmental) which borrows the funds for a defined period of time at a variable or fixed interest rate.
Bonds are used by companies, municipalities, states and sovereign governments to raise money and finance a variety of projects and activities.
Owners of bonds are debt holders, or creditors, of the issuer.
Owner of Bonds are called Bondholders.
Bondholders are creditors to the corporation.
Bondholders will get paid before a stockholder in case of bankruptcy.
Bondholders are not entitled to profit-sharing.
They are only entitled to the interest stated.
Bonds may yield lower returns but are less exposed to risks than stocks.
Elements of Bonds: Face value - is the money amount the bond will be
worth at its maturity, and is also the reference amount the bond issuer uses when calculating interest payments. The Face Value is not the price of the bond.
Dividend – is the amount of interest
Dividend Rate - is the rate of interest the bond issuer will pay on the face value of the bond, expressed as a percentage.
Coupon Dates - are the dates on which the bond issuer will make interest payments. Typical intervals are annual or semi-annual coupon payments.
Maturity Date – the date when the bond will mature or expire. On this date the bondholder may redeem the face value.
Maturity Value – the amount which will be paid to the bondholder on the coupon date.
Mr. Dominguez purchased one hundred 6% bonds from ALB Finance Corporation. Each bond has a face value of ₱ 1000 and each bond were purchased at ₱960. The bonds mature after 5 years.
How much will Mr. Dominguez receive as dividend for all the bonds if dividends are paid semi-annually?
Compute for it’s Maturity Value. After the Maturity Date, how much is the total
earnings of Mr. Dominguez?
Find the purchase price of the bond:
Face value = ₱1000 Dividend Rate = 3% Yield Rate = 5% Coupon Dates = Annually Maturity Date = 5 years
Find the purchase price of the bond:
Face Value = ₱800000 Dividend Rate = 4.5% Yield Rate = 6% Coupon Dates = Semi-Annually Maturity Date = 6 years
Find the purchase price of the bond:
Face Value = ₱600,000 Dividend Rate = 4% Yield Rate = 6.5% Coupon Dates = Quarterly Maturity Date = 36 months
