Week 6 Bonds.docx - CH 8 BONDS BONDS long term debt securities issued by corporations and governmental agencies Are typically registered meaning that

Week 6 Bonds.docx - CH 8 BONDS BONDS long term debt...

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CH 8 BONDS BONDS: long term debt securities issued by corporations and governmental agencies. Are typically registered, meaning that they have a record of ownership Typically thought of as a safer investment than common stock. SECURED BONDS: have collateral If you took out a loan for a car, the car would be the collateral Meaning if the bond has collateral then their is some form of asset tied to it UNSECURED BONDS are called DEBENTURE and sometimes subordinated debentures No collateral tied to this Suppose this year you bought 1 bond from a company and it was unsecured (debenture) next year to raise more money the company sells more. Now if the company were to get into financial trouble, wouldn’t it make sense that you should be able to get your bond first(since it was sold first)? What happens typically is since your bond would have seniority those newer ones would be subordinated bonds (would be riskier). As a bond becomes riskier the return it needs to pay goes up Junk Bonds come from here, all they are greatly subordinated bonds Just means it’s a riskier higher yielding bond BEARER BONDS have no record of ownership Meaning if it was stolen, you wouldn’t be able to get it back, it’s like cash. INDENTURE: are the listed conditions of a bond (information packet). 1. Rights of all parties: a. company that sold the bonds (one party: issuer), have the right to use your money for that specified time frame (but they have to pay you the interest every year). b. You (another party: bond holder) who bought the bond, have the right to receive the interest. You can sell it anytime though (don’t have to keep it) c. The trustee(third party: neutral), would most likely a be a bank, where the company chooses it and pays them to make sure that everyone does as there supposed to do. 2. Restrictive provisions: if you bought a secured bond that has collateral, therefore the company can’t sell the collateral cause then it would no longer be a secured bond. a. Call Feature w/ Restrictive Provisions: one would be that the company can’t call back any bonds till 5 years or they can’t call more than 20% of them in a year.
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  • Fall '08
  • Olander
  • Debt

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