BU111 Lecture Notes - Lecture 11: Callable Bond, Debenture, Corporate Bond
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Document Summary
Bearer bonds name of the owner is not registered, cash equivalent. Registered bonds bond is registered to one person/company. Callable bond company has the right to recall a bond at an earlier date, generally better for company, less desired by investors. Companies who see interest rates dropping issue these bonds. Companies do this as it places a smaller burden on them to repay debt at maturity date. You choose which date (from those offered) when bond comes due. Convertible can convert bond from debt to equity. Pretty attractive from investors perspective due to flexibility. Bonds liked by companies because debt is cheaper than equity. Dividend dollar more expensive than interest dollar because company does not pay tax on interest. Prevailing interest rates and credit rating at issue. Companies want to sell bond at face value, so change coupon rate (yearly interest payment) and features to make it more attractive. Coupon rate & prevailing rates of interest (relationship)
