FIN 300 Bond Valuation Notes.docx - FIN 300 Bond Valuation...

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BV 1FIN 300 Bond Valuation NotesBonds:long-term debt securities issued by corporations and governmental agencies. We assume that we have efficient markets, which means that current prices reflect all available information. Most bond trades are very large (pensions,mutual funds…) so for the small investor, bond markets are considered to be ‘thin’ which means infrequent trading.Secured bonds have collateral Unsecured bonds are called debentures and sometimes subordinated debentures or junk bonds Bonds are typicallyregistered-which means that they have a record of ownership Bearer bonds have no record of ownershipConditions of a bond are listed in the indenture:1. Rights of all parties 2. Restrictive provisions 3. Sinking fund 4. Call feature 5. Convertible feature 6. Terms: coupon rate, par value, maturity purchase a bond for $985 that has a $1000 par value. You can convert the bond into 20 shares of common stock which is currently selling for $40 a share.

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