Financial Markets and Institution: The Bond Market
Financial Markets and Institution: The Bond Market
Financial Markets and Institution: The Bond Market
Institution
Lecture 6
The Bond Market
Learning Objectives
To look
19-2
Introduction
Business
In
19-3
Use
Best
Stocks
and bonds
issuers of securities:
Federal
issuers
Corporations:
Largest
You
purchasers of securities:
and me
2.
Primary
Secondary market
Over-the-counter
Background on Bonds
Types of Bonds
Long-term
government bond
Treasury
bonds
Agency
bonds
Municipal
bonds
Corporate
bonds.
Types of Bonds:
Sample Corporate Bond
Treasury Bonds:
Recent Innovation
Treasury
Inflation-Indexed Securities
(TIPS):
the principal amount is tied to the current
rate of inflation to protect investor
purchasing power
Treasury
TIPS:
STRIPS:
The
The
1. Secured
2. May
3. Fed
By
As
Both
1.
2.
3.
Then gov took over and have their regulator oversee their
day-to-day operations.
Khazanah
Cagamas
Municipal Bonds
Issued
Used
Tax-free
Municipal Bonds
Two types
General obligation bonds backed by the full
faith and credit.
Revenue bonds backed by cash flow of a
particular revenue-generating project.
NOT default-free
Local government cannot print money & limited
taxes raising.
Defaults in 1983 amounted to $225 billion in this
market.
Liquidity risk
Corporate Bonds
Typically
Bonds
Replaced
IRS
bearer bonds
Restrictive
Covenants
Mitigates
May
Usually
Provisions
Higher yield (call price set at a price higher or equal to par value)
Sinking
fund
Conversion
1232
1233
Malaysian
The
Malaysia:
Danajamin Nasional
Solution:
1.Identify the cash flows:
$50
Investing in Bonds
Bonds
Even
Investing in Bonds
The
Note
Investing in Bonds
Tutorial Question
Mishkin
Quantitative
problem
- Questions 1, 2, 3, 4, 9, 11
- (Chapter 12 pg. 340-341) Quantitative Problems
1,2,3,8,10,15