Options and Corporate Finance: Basic Concepts

May 28th, 2015
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Perpetual bonds are the bonds which have no maturity date. They are non- redeemable but pay a steady interest forever. Their cash flows are therefore perpetual, that is where the name comes from. Perpetual bonds have the qualities of both bonds and equities. Like bonds, they pay periodical interest to investors. And like equity shares, they do not have any maturity. This is the reason they are also called as hybrid These types of bonds are not that popular, but they provide a good way for Banks and other companies to raise money.

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Finance AssignmentSubmitted By:-Binny Grover(Roll No. 15)Question 1: Perpetual BondsAnswer:-Perpetual bonds are the bonds which have no maturity date. They are non- redeemable but pay a steady interest forever.Their cash flows are therefore perpetual, that is where the name comes from.Perpetual bonds have the qualities of both bonds and equities. Like bonds, they pay periodical interest to investors. And like equity shares, they do not have any maturity. This is the reason they are also called as hybridThese types of bonds are not that popular, but they provide a good way for Banks and other companies to raise money.They pay a higher rate than other bonds with a similar credit profile.In Perpetual bonds, the investor cannot ask for his money back unless the issuer decides to payback investors and redeems the bonds.Most of these types of bonds are callable, but only after 5 years of the date of issue of the bondsA perpetual bond can be transferred from one person to another...Perpetual Bonds carry bigger risk for the investors, Because RBI has put a rule that perpetual bonds will stop providing the returns if the issuing banks CRAR fall below the regulatory requirements.The payment of perpetual bonds is similar to stock dividend payments - as they both offer some sort of return for an indefinite period of time.The price of a perpetual bond is therefore the fixed interest payment, or coupon amount, divided by some constant

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