5-3040 2010 Valuation Bonds and Stocks without leverage

5-3040 2010 Valuation Bonds and Stocks without leverage -...

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VALUATION OF CORPORATE SECURITIES
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CORPORATE BONDS Common Features to All Bonds Indenture Describes obligations of issuer, and bond trustee Par Value ( also called maturity or face value) $1,000 or multiple thereof The payment required to retire debt at maturity Coupon Rate Stated as a percent, i.e., 10% Multiplied times par value to determine annual interest payment (.10 x $1,000 = $100). Most pay interest semi-annually ($50 every six months) Maturity Date Normally between 10 – 30 years Interest payment and maturity dates are pre-set in indenture
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TYPES OF BONDS Mortgage Bonds Secured debt, open or closed ended Debenture Bonds Unsecured debt Subordinated Debenture Bonds Have lower priority to income and assets then debentures Some debenture’s have clause stating no additional bonds of greater or equal claims can be issued Convertible Bonds At investor’s option, can be converted to shares of common stock At conversion, bonds cease to exist
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Bond Provisions Protective Covenants Minimum level of earnings relative to interest payments (times interest earned or TIE) Dividend payment restrictions Liquidity minimums
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Bond Provisions Protective Covenants Call Provision Allows firm to buy back all or part of the issue, virtually forcing investors to sell bonds to company Example: March 29 firm randomly selects bonds to be called (if less than 100% are called), sends call notice stating as of May 5 interest will cease accruing. Also, trading will stop on the
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5-3040 2010 Valuation Bonds and Stocks without leverage -...

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