FinQuiz - Smart Summary - Study Session 15 - Reading 51
FinQuiz - Smart Summary - Study Session 15 - Reading 51
FinQuiz - Smart Summary - Study Session 15 - Reading 51
1. INTRODUCTION
FI security an instrument that allow governments, companies &
other types of issuers to borrow money from investors.
Adding FI securities to portfolio adds diversification benefits.
2.1.1 Issuer
2.1.2 Maturity
3.1.1 Legal Identity of the Bond Issuer and its Legal Form
Bond issuer is legally obliged to make contractual
payments.
3.1.5 Covenants
Bond covenants legally enforceable rules that
borrowers & lenders agree on at the time of a
new bond issue.
Affirmative covenants what issuers required to
do (admin nature).
Negative covenants what issuers are
prohibited from doing (costly & do materially
constrain the issuers potential business decision).
Examples restrictions on debt, negative
pledges. Restriction on prior claims
restrictions on investments etc.
These bonds:
Paid no coupon for first few years & pays
higher than normal coupon for the remainder
of its life.
Common in project financing.
Priced at significant discount to par.