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BONDS

Submitted to:
Mr. Salman Ahmed Shaikh

Submitted by:
Khalid Irfan (BM-15047)
Definition of a Bond
 Bonds are long terms debt instrument that issued
by government or corporations.
 A bond is a security that obligates the issuer to
make specified interest and principal payments to
the holder on specified dates.
 Coupon rate
 Face value (or par)
 Maturity (or term)
 Bonds are sometimes called fixed income
securities.
Types of Bonds
 Pure Discount or Zero-Coupon Bonds
 Pay no coupons prior to maturity.
 Pay the bond’s face value at maturity.
 Coupon Bonds
 Pay a stated coupon at periodic intervals prior to
maturity.
 Pay the bond’s face value at maturity.
 Perpetual Bonds (Consols)
 No maturity date.
 Pay a stated coupon at periodic intervals.
Bond Issuers
 Government

 Financial Institutions

 Corporations
Government Bonds
 Treasury Bills (Gilts)
 No coupons (zero coupon security)
 Face value paid at maturity
 Maturities up to one year
 Treasury Notes
 Coupons paid semiannually
 Face value paid at maturity
 Maturities from 2-10 years
Government Bonds
 Treasury Bonds
 Coupons paid semiannually
 Face value paid at maturity
 Maturities over 10 years
 The 30-year bond is called the long bond.
Government Bonds
 No default risk. Considered to be riskfree.
 Exempt from state and local taxes.
 Sold regularly through a network of primary dealers
Corporate Bonds
 Secured Bonds (Asset-Backed)
 Secured by real property
 Ownership of the property reverts to the
bondholders upon default.
Bond Ratings
Moody’s S&P Quality of Issue
Aaa AAA Highest quality. Very small risk of default.

Aa AA High quality. Small risk of default.

A A High-Medium quality. Strong attributes, but potentially


vulnerable.
Baa BBB Medium quality. Currently adequate, but potentially
unreliable.
Ba BB Some speculative element. Long-run prospects
questionable.
B B Able to pay currently, but at risk of default in the
future.
Caa CCC Poor quality. Clear danger of default .

Ca CC High specullative quality. May be in default.

C C Lowest rated. Poor prospects of repayment.

D - In default.

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