Alternate Types of Investments Bonds 2009

Alternate Types of Investments Bonds 2009 - Planning...

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Critical Success Factors Stakeholders Top Management Vision Strategy Mission Middle Management First-Line Management Planning Organizing Directing Controlling EXTERNAL INTERNAL Economic Social Technological Political Marketing Finance Human Resources Operations
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Canadian Financial System Funds Required Debt Equity / Stocks Money Market - t-bills - short term gov’t notes - commercial paper - Gov’t bonds Banks Private placement - institutional investors Public sale OSC Over-the-Counter Market bonds/debentures, unlisted stock, mutual funds, Stock Exchanges Preferred &Common shares, Options (derivatives) Investment Dealers Agent vs. Principal Short term Long term Bonds
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Alternate Types of Investments Bonds: Definition A bond is a promise by the issuer or borrower (government or corporation) to repay an investor (the lender) a set dollar amount (the principal), at a set date (the date of final maturity), and to pay the investor a fixed rate of interest (the coupon rate) each year
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Characteristics of All Bonds Face Value Most bonds are initially sold at a face value (par value) of $1,000 per bond Length of Life/Date of Final Maturity Most bonds have a relatively long life from the time they are initially sold (issued) until the time that they mature (date of final maturity) This is referred to as the bond’s “run to maturity” or “life expectancy” and is normally 20 years
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However, some bonds may have a longer run to maturity (for example 30 years) or a shorter run to maturity (10 or 15 years) For the sake of simplicity, we will always assume that a bond will have a life expectancy (or run to maturity) of 20 years Date of Final Maturity At the end of it’s life, a bond is said to “mature” and the issuer will repay the principal ($1,000) to the holder of the bond
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Coupon Rate Each year the owner of a bond will receive a fixed rate of interest from the issuer of the bond The amount of interest received annually is determined by the following formula Annual Interest = Coupon Rate X Face or Par Value ($1,000) An investor will never receive anything more than this amount of interest, but will also never receive anything less than this amount
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If the issuer of a bond fails to pay the required amount of interest to the investor, it is considered to be an act of bankruptcy The bondholders can then take action to force the company to liquidate its assets and use the proceeds to pay their outstanding claims (all interest owed plus full repayment of the principal loaned) How Is This Accomplished? The Bond Indenture (Contract) The Bond Trustee The Order of Liquidation
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Order of Liquidation (According to Canadian Bankruptcy Law) Secured Creditors (Banks, Bondholders) Preferred Creditors (Government) Unsecured Creditors (Suppliers, Employees, Debenture Holders) Preferred Stockholders Common Stockholders
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In view of the foregoing, Bonds are usually
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This note was uploaded on 02/21/2010 for the course BUS 111 taught by Professor Jimmccutcheon during the Fall '09 term at Wilfred Laurier University .

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Alternate Types of Investments Bonds 2009 - Planning...

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