Description
Understanding how to properly value a vanilla bond (a plain bond) is essential for finance. Using the following Web site, find 3 different funding structures. Describe for each structure: security type, term, and yield. Furthermore, take a look at each of their offering documents, and provide a short description of the information found in the documentation.
- Why do the different types of bonds get different rates? Explain your answer.
- What makes each of the different structures different? Explain your answer.
- What does the rate given say about the credit rating for each issuer? Explain your answer.
- How does credit rating affect the rate given to the issuer? Explain your answer.
- Which structure has the best credit rating based on the yield given to each structure? Explain your answer.
- What is the credit rating supposed to tell you? Explain your answer.
- Which bond is receiving the best price? Explain your answer.
- Why does having a good credit rating matter to the issuer? Explain your answer.
- 800-1000 words
Explanation & Answer
Attached.
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Date of Submission: 15 July, 2017
Introduction
Along with the funding structures, the bonds issued by the companies can be of different
types. Three different types of bond funding structures include security type, term, and yield.
Due to these funding structures, a diverse categories of bonds are prevalent in the financial
market.
Bond Funding Structures, and Credit Rating
Bond Funding Structures, and Associated Issues
Bond Funding Structures
Security Types: Security types refers to the styles of securities offered. Bonds can be of
different styles in terms of claim structure, collateral, benefits and others. Based on the
preference of claim, the bonds can be of two types- senior bonds, and subordinated (junior)
bonds. Secured bonds, and unsecured bonds are two categories of bonds in terms of collateral of
the bonds. In terms of benefits attached, bonds can be categories as in-kind bonds, convertible
bonds, callable bonds, putable bonds etc. (Vernimmen & Quiry, 2009).
Term: Term refers to the maturity of the bond. Bonds can be issued for several maturities
including 1 year maturity bond, 3 years maturity bond, 5 years maturity bond, 10 years maturity
bond, 15 years maturity bond, 30 years maturity bond etc. (Vishwanath, 2007). Based on the
planned assets structure, the maturity of the bonds to be issued is determined by the issuers.
Yield: Yield refers to the return offered in the bond. Based on the yield offered, bonds
can be of three types including premium bond, par value bond, and discount bond (Vernimmen...
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