Escolar Documentos
Profissional Documentos
Cultura Documentos
Features of Debt
Securities
1
Quoted price Price per US$1 of par value Par value Dollar price
(1)
(2)
(3) (4) = (2) (3)
86 1/4
0.86250
$50,000 $43,125
110 3/8
1.10375
$200,000 $220,750
5
Step up notes
Securities where the coupon rate increases
(or steps up) over time
Single step up note: where there is only
one increase (or step up) in the coupon rate
5%
5.25%
5.60%
12
13
14
In-class exercise 1
15
In-class exercise 2
16
Accrued interest
Accrued interest is the interest earned by the
bond seller between the last coupon payment
date and the bond settlement date
Last
coupon
payment
date
(A)
Settlement date
(B)
Next
coupon
payment
date
(C)
18
Accrued interest
Full price (or dirty price) is the agreed upon
price for the bond plus the accrued interest
19
Embedded options
Call risk
Prepayment risk
20
Embedded options
Convertible bonds
21
Borrow funds to
purchase bonds
Repurchase agreement (repo)
The
Buyer
(B)
Sells
securities
The investor
(A)
Receives
cash
Time 0
The
Buyer
Pays (a higher) (B)
repurchase price
including repo
rate
Time 1
22
Repo
23
Repo
24
Repo
Repo (from the investor (A)s perspective):
agrees to sell the securities and buy them
back, i.e., borrow funds
Reverse repo (from the buyer (B)s
perspective): agrees to buy the securities
first and sell them back later, i.e., make a
loan
Repo is primarily for institutional investors
to meet their short term financing needs
25
Repo
26