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Select a company
Select a company with long term bonds outstanding. There are many examples in the textbook. Locate and analyze a current quotation for that bond. Use figure 10.2 in the textbook as a guide. Compare the current price with the par value. Explain at least one (1) reason for the difference.
Common elements of Bonds
Represent borrowed funds
Contractual agreement between a borrower and lender (INDENTURE)
Senior claim on assets and cash flow
No voting right
Having a Bond rating improves the issue’s marketability to investor’s covenants
Interest: tax deductible to the issuing firm
Usually fixed over the issue’s life but can be variable as the indenture allows coupon rate on new issues affected by market interest rates and bond rating.
Maturity: usually fixed; can be affected by convertibility, call and put provisions, sinking fund, extendibility features in the indenture.
Security: can have senior claim on specific assets pledged in case of default or can be unsecured(debenture or subordinated [junior claim] debenture)