RSM230H1 Chapter Notes - Chapter 6: Sinking Fund, Premium Bond, Dividend Yield
8 Mar 2017
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Document Summary
A xed-income security: provides a known income stream to the holder and has a known maturity date. Examples of traditional fis: bonds, debentures, mortgages, swaps, and preferred shares. Examples of discounted xed income securities (sold at a discount from face value the return is the increase in principal value and treated as income): strip (or zero-coupon) bonds and most money market instruments (tb, cp, ba) Bonds: debt instruments that are secured by real assets and are often called mortgage bonds. 3 main reasons for borrowing money: match the term of assets with the term of liabilities, bene t from the use of nancial leverage. Secondary market trading of debt instruments is much larger than trading in equities. Provincial bonds are usually callable at fv plus accrued interest. Usually corporate issues have a mandatory call feature for sinking fund purposes. Security: details of the assets that support the debt. Debt test: limits additional debt assumed by maximum dta.
