RSM230H1 Lecture 5: The Bond Market (Lecture 5) Notes
Document Summary
Bonds: amount borrowed is par or face value , pay interest semi-annually (north america) or annually (europe, market price determined by yield to maturity (ytm) Interest is an expense and is deductible from taxable income under certain conditions. Indenture is a bond contract sets out all the terms of the contract: trustee makes sure that the terms of the bond contract are upheld, covenants are clauses within the contract that specify particular restrictions. If you sell bond before maturity, you will have a capital gain or loss. Real return bonds: provides inflation protection for bond investors; indexed to inflation, break-even inflation rate (beir) is the bond market"s forecast of future inflation rates. Credit ratings: companies pay to have their bonds rated, ratings apply to the bonds not the company, lowest investment grade rating is bbb; below bbb is high-yield/junk bonds, ratings are modified over time with changes.
