Security Analysis Reviewer

Security Analysis

Public Bonds: long-term, fixed-obligation debt securities

Characteristics of Bonds

* Bond Intrinsic Feature

1. Coupon

2. Term to Maturity

3. Principal/Par Value

* Types of Issues

1. Secured (senior) Bonds

2. Unsecured (debentures) Bonds

3. Subordinate (Junior) Bonds

* Indenture Provision (Contract)

1. Freely callable provision: retire the bond anytime

2. Non-callable provision: issuer cannot retire the bond prior to maturity

3. Deferred call provision: issue cannot be called for a certain period of time

4. Non-refunding provision: prohibits call and premature retirement of the issue

* Feature Affecting a Bond’s Maturity

1. Call premium: amount to be paid for premature retirement of a bond

2. Sinking Funds: the bond must be paid systematically over its life

Issuer of Bonds:

1. Corporation

2. Government

Bond Rating Agencies:

1. Fitch Investor Service

2. Moody’s

3. Standard and Poor’s

International Bonds:

Foreign Bonds: Issues sold primarily in a country and currency by a different nationality

1. Yankee Bonds: Dollar-denominated bonds sold in U.S. by a Japanese firm.

2. Samurai Bonds: Yen-Denominated bonds sold in Japan by non-Japanese firms.

3. Bulldog Bonds: Sterling-denominated bonds sold in London by non-English firms.

Eurobonds: bonds underwritten by international syndicates

1. Eurodollar Bonds: Dollar-denominated bonds sold outside US markets by international syndicates.

2. Euroyen Bonds: Yen-denominated bonds sold outside Japanese markets by international syndicates.

3. Eurosterling Bonds: Sterling-denominated bonds sold outside UK markets by international syndicates.

Yield: the promised rates of return on bonds under certain assumptions

Yield to Maturity: rate of return if the bond is held until maturity

Cyclical Changes: arise from the ups and downs of a business cycle

Structural Changes: occur when the economy...