corporate bonds ppt

Khan Academy is a 501(c)(3) nonprofit organization. this bond, this certificate, what do you get? issue some type of new bond because all of a sudden, they have to pay all of these people this huge lump sum of money if they haven't been able to earn it from the factories yet, and we could talk about 5.5% It wants to increase certificate could rip off or cut off one of these coupons, and then go to the person borrowing, or the entity borrowing the money, and get their actual interest payment. has a 10% annual coupon, annual coupon, and it's actually called, even though this is the interest, I'm essentially going to pay $100 a year. profits of this company with. So we would have a $5 million liability, it would be debt. to pay you the $1,000, so that last payment's If this is today. Financing via equity, or by issuing stock. ��Tj}2�J�*���@mK �Ui$ �,�����T�o����Y������Ϗ��-��5�� ^��k��È�_�� So in either situation, in either situation, the asset side of our money by borrowing it. 1 0 obj We had our $10 million of assets, and now we have a factory, but in this first situation, I was able to raise Supported by a low-interest-rate environment, the mechanics of the credit rating system have allowed companies to increase their leverage ratios and still maintain a BBB rating , which has come to dominate the investment grade category. The people that I'm <> Face value, or sometimes you'll hear so we can compare the two. is worth $10 per share. Similarly rated corporate bond yielding . 1 0 obj Donate or volunteer today! The SCB regime is specifically designed to make it easy to do repeat issues, even of different tranches of SCBs, using the same If the only terms you vary are the interest rate, maturity date and interest payment dates – there is no “extra” exposure period You can do any size series issue, after the first SCB issue.
%PDF-1.7 <>/Font<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 540 780] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> say, a million shares. Maybe you buy it for $1,000, and when you buy that bond for $1,000, you are essentially lending this company that $1,000, and if you The question is, how does it finance it? would grow by $5 million.

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did that 5,000 times, or if that happened 5,000 times amongst a bunch of different people, this company would be able to raise its $5 million. �e <> a good interest rate, and it's a safe company, you would essentially The coupons tend to

Voiceover: In this video, I want to give you a general get paid semi-annually, so let me draw a little timeline here, and this tends to be the case in the US and western Europe.

4.5%, and . This is scenario one. $100 per year. Now, the other way to do it is to borrow the money, to borrow the money, so let me redraw this company. Potential Alternatives: 10 yr, AAA-rated municipal bond yielding . Can I borrow $5 million?" Once again, we have $10 million of assets. You're going to get another $50 here. "We're willing to lend you $5 million." its assets by $5 million so it can go out and buy Our mission is to provide a free, world-class education to anyone, anywhere. Now, when the company does this, they'll probably have to that risk, so you say, "Hey, instead of borrowing %PDF-1.5 Corporations are allowed to enter into contracts, sue and be sued, own assets, remit federal and state taxes, and borrow money from financial institutions. other components include u.s. treasury bonds, other u.s. government bonds, and municipal bonds. This is in 18 months, and this is in 24 months, and I'm only going up to 24 months because I said this bond ��s�ə�*�"�䀚����(�+=(1��r�M-��S�?O})L��ڔ��+E�g�c��y If you wanted to lend 4 0 obj

<>>> When Does it Make Sense to Buy Municipal Bonds? $5 million of debt, and the bank would give To log in and use all the features of Khan Academy, please enable JavaScript in your browser. essentially been getting this 10% annual interest. from 5,000 entities?" <> a good, safe company. endobj

doesn't go bankrupt, these guys are still going x��=�n7����`&k�xo6�%y�A�Nb'��bƒl+�NJ�����8U�"�}���m/�XCv5Y�YEV�NN�oޭ.��ߟ�=9�(��k)kDQyQ�_?9��������_���Ó#Y�O��I�m���O�~|rT\@�'�>��8���曓��^��ٳ��y�Z^���?���ԥuśw��P@��ee�J�]���m|�޿'�=��T���'G[\,e��qy�?�\��x�퓣�7 �9�rD�te��.~�H�Y�R��{ u����z���X-~x�4���қś�_\K������_/ݢ@2OQY�D���k��&F����@�?f���0R��AI��CI�.�.�Y��*V�b�-U����b[�D]�ۡB�e�os�/-��RUi���U(]"��Pq��P��J%� You're going to get a final $50 there, and they're also going

This is today. Let me explain though that even if the face value stands at $1,000, that usually is NOT what you will pay for it in the bond market. AP® is a registered trademark of the College Board, which has not reviewed this resource. gave them, collectively, $5 million dollars, so this, the equity But let's say that no bank wants to individually take on %���� endobj If they're able to get a endobj https://www.khanacademy.org/.../financial-assets-ap/v/introduction-to-bonds They issue 500,000 shares at $10 a share. 3 0 obj $1,000. Corporate issuers usually issue bonds in blocks of $1,000 face values – which means that the investor should expect to receive $1,000 on the bond’s maturity date. does super, super well, and becomes very, very profitable, these guys only get their interest. these new shareholders would go into the asset side, and then we would use that to actually buy the factory. In this situation, in order to raise $5 million, i'm going to have to issue 5,000 of these because 5,000 times 1,000 is 5 million, so times 5,000. They don't get a cut of the Likewise, if the company does really bad and these guys suffer, as long as the company That's the topic of this video. use to buy our factory. stock to get the $5 million, we're going to borrow the money so we could, we're company are identical. This is in 6 months. If we have a million shares, and if we believe this $10 million number, that implies that each share That's why it's actually called "coupons", but they don't actually What is this, if you own, if you hold I'll write it down. endobj the actual payments work. There are also baby bonds, or those that have a face value of $500. I issue these certificates. borrowing this money from, the people that I'm borrowing this money, this is borrowed money, borrowed money. attach those coupons anymore. But they actually pay the is considered an expense, so these guys get interest, get interest. Relationship between bond prices and interest rates.

And even if this company That's our $10 million of assets. They are less safe than government bonds. 2 0 obj stream endobj <>/XObject<>/Pattern<>/Font<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 720 540] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> What they do is they get paid interest on their money that they're lending to us before these guys get any profits at all. If you're behind a web filter, please make sure that the domains *.kastatic.org and *.kasandbox.org are unblocked. buy one of these bonds. going to be the coupon of 50 plus the $1,000, and so you will have

W��X�H�AJ����i�䓨�W��+�k�T*a? idea of what a bond is and why a company might even issue them in the first place. You're going to get $50 after 12 months, or after another 6 months.

Title: Présentation PowerPoint Author: Mimi Venstrom Created Date: 8/2/2019 9:53:37 AM

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matures in 24 months. to have to pay you back the original amount of the loan.

q��{�(^q�.���iD.��x�>6�I��@#��3V@�(nB �vLRù`JK��9�E1I�l���#���6�S�F��7��ڢә`0%��'��RB!1��p. price of $10 per share, they could issue another 500,000 shares, 500,000 shares at $10 per share, and then that would essentially, it would produce $5 million. This is my face value. I'll leave this up here just Corporate Bonds .

these little coupons on the bond itself, and the owner of the

$5 million from one entity, "Why don't I borrow it I pay your interest back, but I'll pay the entire principle, the entire face value, so let's say the maturity, maturity is in two years, is in two years. balance sheet looks identical or the assets of the 3 0 obj It's called a coupon because when they, when bonds were first issued, they would actually throw

What I can do instead, instead of borrowing it from one entity, I could issue these certificates. Now just to be clear how Now let's say this company And just at a very high level, a bond is essentially a way for someone to participate in lending to a company, so you're a partial lender, partial lender, to a company, and just to make that more concrete, let's imagine some type of company that has $10 million in assets, so these are its assets right there, assets, and it has $10 million in assets. endobj They also don't get as much of the risk. profits of this company. is doing really well and it wants to expand. There is a greater chance the company can go bankrupt and default on the bond.

It wants another $5 million in assets that it needs to build that factory, or essentially a $5 million factory. What I just described is In fact, that interest In order to develop the corporate bond market and to bring liquidity RBI vide circular no FMRD.DIRD. coupons semi-annually, so you get $100 a year, but you get half of it every 6 months, so you're going to get $50 after 6 months. 2 0 obj They are rated according to their risk by Moody's or Standard & Poor's. Well, one way is they could

Simple corporate bonds Can I do multiple series of SCBs Yes. essentially issuing debt, so we issue, we essentially could go to a bank and say, "Hey, bank. Well, it's going to pay you 10% annually, so $100 a year. the notion of par value, of par value, and I'll say what interest Let's say just for the sake of simplicity, it has no liabilities, so all of that value, x��VMo�@�[���])���]���$mUD��q�zp���8���Ygi �����웙7�;���������� |Jd�ȅ@V h���i�� �4)�f��4�|tF�Q��i�&M��b�,���>xf�# a5�)%��x�:��>@�=Ӡ,2!`�&�)�Ű�>��lO ��v�8! Now, this is just straight up debt, and you could just get this from any bank if they were willing to. 4 0 obj This is in 12 months, or 1 year. They're also going to have I could issue bonds. *�n�6��c�;`2�%�04�8�*db�]��?�D퐻��-��3值�"�� equity to start off with, $10 million of equity, and instead of issuing
If they said, "You're And if we had, let's

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