FIN504_PowerPoint_Slides_07

FIN504_PowerPoint_Slides_07 - FIN 504: Financial Management...

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FIN 504: Financial Management Lecture 7: Bond Valuation
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2 FIN 504: Financial Management Bond Valuation Bond Basics Bond Terminology Bond Ratings Valuing Bonds Technical Features of Bonds The Comparative Statics of Bonds
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Bond Basics
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4 FIN 504: Financial Management Bond Basics Form of Long Term Debt Coupons Coupon Rate (cr) Fixed Payment Bankruptcy Trigger Par Value/Face Value/Principal Period (typically semi-annual) Maturity Interest Rate
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5 FIN 504: Financial Management Bond Terminology Debenture Subordinated Debenture Mortgage Eurobond Zero Coupon Bond Junk Bonds
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6 FIN 504: Financial Management Types of Bonds Government Bonds U.S. Treasury Securities Treasury Inflation-Protected Securities (TIPS) State and Local Municipal Bonds (‘Muni’s’) Corporate Bonds Short-Term Debt Commercial Paper Mortgages
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7 FIN 504: Financial Management Bond Rating Agencies Agencies Standard & Poor's Moody's Fitch Ratings Investment Grade Bond Junk Bonds
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8 FIN 504: Financial Management Bond Rating Investment Grade AAA : the best quality companies, reliable and stable A : quality companies, a bit higher risk than AAA A : economic situation can affect finance BBB : medium class companies, which are satisfactory at the moment Non-Investment Grade (also known as junk bonds) BB : more prone to changes in the economy B : financial situation varies noticeably CCC : currently vulnerable and dependent on favorable economic conditions to meet its commitments CC : highly vulnerable, very speculative bonds C : highly vulnerable, perhaps in bankruptcy or in arrears but still continuing to pay out on obligations CI : past due on interest R : under regulatory supervision due to its financial situation SD : has selectively defaulted on some obligations D : has defaulted on obligations and S&P believes that it will generally default on most or all obligations NR : not rated
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This note was uploaded on 06/29/2011 for the course FIN 525 taught by Professor Dloncar during the Spring '11 term at University of Baltimore.

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FIN504_PowerPoint_Slides_07 - FIN 504: Financial Management...

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