Investments in Bonds, Classification of Bonds - International...

Investing in bonds

Classification of bonds

One of the main types of assets, in which international companies invest their funds, are bonds.

The whole world experience of investment activity shows that without the creation of an effectively functioning debt securities market, it is impossible to renew and increase production resources that ensure economic growth in the country.

A <?> bond representing the most common type of fixed income securities is a security that indicates that its holder has provided a loan to the issuer of that security.

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In the world practice, several methods of paying yield on bonds are used, among them: fixing a fixed interest payment; application of a step interest rate; the use of a floating rate of interest income; indexing of the bond's face value; sale of bonds at a discount (discount) against their nominal price; holding of winning loans.

Establishing a fixed interest payment is the most common and simple form of paying yield on bonds.

If you use the step interest rate , several dates are set, after which the bondholders can either pay them off or leave until the next date. In each subsequent period, the interest rate increases.

The interest rate on bonds can be floating , i.e. (every six months, etc.) in accordance with the dynamics of the central bank's discount rate or the level of profitability of government securities placed through auction sale.

In some countries, issuance of bonds with denomination indexed taking into account the growth of the consumer price index is practiced as an anti-inflationary measure.

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For some bonds, interest is not paid. Their owners receive income by purchasing these bonds with discount (discount against face value), and paying off at face value.

Income on bonds can be paid in the form of winnings to individual owners on the basis of regular runs.

There is a great variety of bonds. To give their detailed classification, it is necessary to turn to the rich foreign experience of arranging bonded loans (Table 3.2).

Table 3.2

Bond classification but featured

Symptom

Content

1. By groups of emission organizers

Public (public bonds):

- the federal government (sovereign bonds ) - sovereign bonds;

- subjects of the federation (municipal bonds);

- government agencies ( corporate, banking bonds)

Foreign

2. According to the terms of issue and circulation

Bonds with a certain maturity date:

- Short-term

(with maturities from 1 to 5 years);

- medium-term (from 5 to 12 years);

- long-term (over 12 years)

Bonds without fixed maturity:

- unlimited (unavailable), i.e. not involving repayment of the nominal value, entitling to receive only coupon income;

- revocable, suggesting the possibility of their repurchase by the issuer before maturity. They represent the main type of corporate bonds currently used in the United States

3. Depending on the order of ownership

Names, ownership rights which are confirmed by the introduction of the owner's name in the text of the bond and the book of registration of bondholders

To the bearer. In a number of countries, legislation prohibits the issue of such bonds (in the US - since 1982), but many of them are still in circulation

4. For release purposes

Ordinary, issued for refinancing debts or for attracting additional financial resources

Targeted, issued for the mobilization of funds directed to finance specific investment projects

5. By the way of redemption of nominal value

Redemption of a face value by a single payment

Redemption distribution over time

6. By coupon size and formation of profitability:

Bonds with zero coupon (zero-coupon, net discount)

The investor's income consists in the fact that he buys a bond at a price much lower than the nominal (deep discount), and at the time of redemption he receives a nominal value. In the zero-coupon form, as a rule, short- and medium-term bonds are issued, however, in the early 1980s, In the United States there were also long-term bonds, not providing for coupon payments. Non-coupon bonds may be attractive to an investor if it is necessary to accumulate a certain amount of money by a certain time (which coincides with the moment of bond redemption). Having bought the necessary number of bonds, the investor, unlike coupon bonds, relieves himself of dependence on market conditions

Bonds with a cumulative coupon

Interest on such bonds is not paid until their repayment, and when redeemed, the investor receives the nominal value of the bond and the cumulative interest income. Such bonds include, for example, some savings certificates issued in the United States

Coupon Bonds

The bondholder is paid not only the face value at the time of repayment, but also the periodic pre-determined coupon interest. The yield on a bond is called a percentage, or a coupon. Coupon bonds are the most common type of bonds in modern practice in all countries, with the most frequently used coupon period being 6 months.

Multicurrency

Bonds

Provide for the payment of a coupon in one currency, and the redemption of a par value in another. Are applied more often at placing of securities in the foreign market (in the form of foreign bonds)

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