CHAPTER FOUR BOND FUNDAMENTALS 3 Practical Investment Management Robert A Strong
BOND FUNDAMENTALS CHAPTER FOUR Practical Investment Management Robert A. Strong 1
Bond Principles: Identification of Bonds Bonds are identified by issuer, coupon rate, and maturity. The face value of a bond is called its par value eg.5of“ Hertz sevens of03”( Hertz7s03) A legal document called the indenture contains the details of the bond issue Strong c4- Bond fundamentals 4-2
4 - 2 Strong C4 – Bond Fundamentals Bond Principles: Identification of Bonds Bonds are identified by issuer, coupon rate, and maturity. The face value of a bond is called its par value. e.g. 5 of “Hertz sevens of 03” (Hertz 7s03) A legal document called the indenture contains the details of the bond issue
Bond Principles: Classification of Bonds Method 1: By issuer a government e.g. US Treasury, federal agency, state, local b corporation e.g. industrial, utility, financial, transportation C.others e.g. foreign government, foreign corporation, World Bank Strong c4- Bond fundamentals 4-3
4 - 3 Strong C4 – Bond Fundamentals a. government e.g. US Treasury, federal agency, state, local b. corporation e.g. industrial, utility, financial, transportation c. others e.g. foreign government, foreign corporation, World Bank Bond Principles: Classification of Bonds Method 1: By issuer
Bond Principles: Classification of Bonds Government Corporation Other U.S. Treasury Industrial Foreign Government Federal Agency Utility Foreign Corporation State Financial World Bank Local Transportation *Earlier this century, railroads would have also appeared on this list Strong c4- Bond fundamentals 4-4
4 - 4 Strong C4 – Bond Fundamentals Bond Principles: Classification of Bonds Insert Table 4-1 here
Bond Principles: Classification of Bonds Method 2 By security a unsecured debt backed by faith in the taxing power of the government, or the good name of the company(debenture) b. secured debt e.g. revenue bond, assessment bond, mortgage, collateral trust bond, equipment trust certificate Bond security sometimes comes from non-traditional sources. Recently, some rock stars floated bonds using their future earnings as backing Strong c4- Bond fundamentals 4-5
4 - 5 Strong C4 – Bond Fundamentals a. unsecured debt - backed by faith in the taxing power of the government, or the good name of the company (debenture) b. secured debt e.g. revenue bond, assessment bond, mortgage, collateral trust bond, equipment trust certificate Bond security sometimes comes from non-traditional sources. Recently, some rock stars floated bonds using their future earnings as backing. Method 2: By security Bond Principles: Classification of Bonds