Fixed income and leveraged securities
Exercise
Complete the text using the words in the box:
sinking-fund provision serial payment par value bond put provision coupon rate bond indenture zero-coupon bonds maturity date
floating-rate notes call provision perpetual bonds
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Bond contract
A (1)………………… normally represents a long-term contractual obligation of the firm to pay interest to the bondholder as well as the face value of the bond at maturity. The major provisions in a bond agreement are spelled out in the (2)………. …
The(3) ……………. represents the face value of a bond.
(4)………………… refers to the actual interest rate on the bond, usually payable in semiannual installments. A few corporate bonds are termed variable-rate notes or (5)…..….……..meaning the coupon rate is fixed for only a short period.
With (6)...…………….., the investor receives return in the form of capital appreciation over the life of the bond since no semiannual cash interest payment received.
(7)…………....is the date on which final payment is due at the stipulated par value.
Methods of bond repayment can occur under many different arrangements. Some bonds are never paid off, such as selected (8) ……………….. issued by the Canadian and British governments, and have no maturity dates. There are also other significant means of repayment. The first is the (9) ……………. in which bonds are paid off in installments over the life of the issue. Each serial (10)….…….has its own predetermined date of maturity and receives interest only to that point. Second, there may be a (11)…………………… in which semiannual or annual contributions are made by corporation into a fund administered by a trustee for purposes of debt retirement.
Third, debt may also be retired under a call provision. A (12) …………………..allows the corporation to call or force in all of the debt issue prior to maturity. The opposite side of the coin for a bond investor is a (13)…………………. The (14)……………… enables the bondholder to have an option to sell a long term bond back to the corporation at par value after a relatively short period.
Vocabulary
contractual obligation – гэрээгээр хүлээсэн үүрэг
to pay interest – хүү төлөх
bondholder – бонд эзэмшигч, бонд гаргагч
face value – par value - нэрлэсэн үнэ
maturity – хэлцэл биелэх хугацаа
interest rate – хүүгийн түвшин, хүүгийн хэмжээ
provisions – зүйлт, заалт
spell out – зааж өгөх, тодорхойлох
bond indenture – бондын гэрээ
payable in – төлөх
installments – хэсэгчлэн төлөх
variable-rate notes – хувьсах хүүтэй дэвсгэрт
floating-rate notes – хөвөгч хүүтэй дэвсгэрт
zero-coupon bonds – хүүгүй бонд
pay off – төлөх
sinking-fund provision – хуримтлалын сангын гэрээ
stipulate – зааж өгөх
perpetual bonds – тодорхой хугацаагүй бонд
repayment – эргүүлэн төлөх
serial payment – цувуулан төлөх
contributions – төлбөр
trustee – итгэмжихэд буй хөрөнгийг зарцуулагч, захиран зарцуулагч
retire – өргүй болох
force in – өргүй болох, өрөөсөө салах
debt issue – бонд гаргах
call provision – худалдан авах заалт
answer
1. Bond
2. Bond indenture
3. Par value
4. Coupon rate
5. Floating rate notes
6. Zero-coupon bonds
7. Maturity date
8. Perpetual bonds
9. Serial payment
10. Payment
11. sinking-fund provision
12. call provision
13. put provision
14. put provision
Translating
Investment Strategy: Interest rate
When the bond investor believes interest rate are going to fall, he will take a bullish position in the market by buying long-term bonds and try to maximize the price movement pattern associated with a change in interest rate.
Because the impact of an interest-rate change is much greater on long-term securities, the investor generally looks for extended maturities. There are the impact of various changes in yields on bond prices for a 12 and 6 percent coupon rate bond. For example, looking at the -2% line for the 12 percent coupon bond in the upper part of the table, we see a 2 percent drop in competitive yields would cause a 1.86 percent increase in value for a bond with 1 year to maturity but an 18.93 percent increase in value for a bond with 30 years to maturity.
Assume we buy 20 year, $1,000 Aaa bonds at par providing a 12 percent coupon rate. Further assume interest rates on those bonds in the market fall to 10 percent. Based on table below, the new price on the bonds would be $1,171.60($1,000 x 117.16). Although we could assume the gain in price from $1,000 to $1,171.60 occurred very quickly, even if the time horizon were one year, the gain is still 17.16 percent. An integral part of many bond-interests-rate strategies is the use of margin or borrowed funds. For government securities, it is possible to use margin as low as 5 percent, and on high-quality or corporate bonds, the requirement is generally 30 percent. In the preceding case, if we had put down 30 percent cash and borrowed the balance, the rate of return on invested capital would have been 57.2 percent:
Bond value table
12 percent coupon rate
Maturity years
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Yield change
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1
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5
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10
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20
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30
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+3%
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-2.69%
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-10.30%
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-15.29%
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-18.89%
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-19.74%
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+2
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-1.81
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-7.02
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-10.59
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-13.33
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-14.04
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+1
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-0.91
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-3.57
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-5.01
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-7.08
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-7.52
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-1
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+0.92
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+3.77
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+5.98
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+8.02
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+8.72
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-2
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+1.86
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+7.72
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+12.46
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+17.16
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+18.93
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-3
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+2.81
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+11.87
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+19.51
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+27.60
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+30.96
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Although we have to pay interest on the $700 we borrowed, the interest on the bonds would have partially or fully covered this expense. Also, if interest rates drop further to 8 percent, our leveraged return could be over 100 percent on our original investment.
Vocabulary
bullish position – өөдрөг буюу хувьцаа худалдан авах,
рrice movement - ханшийн өөрчлөлт
gain in price – ханш өсөх
еxtended maturities – хэлцэл биелэх хугацааг сунгах
сover – даатгах, хамгаалах
bond-interests-rate strategies – бондын хүүгийн стратеги
borrowed funds – зээлээр босгосон хөрөнгө
leveraged return – хөшүүрэгтэй өгөөж
Translating
1. When the bond investor believes interest rate are going to fall, he will take a bullish position in the market by buying long-term bonds and try to maximize the price movement pattern associated with a change in interest rate.
Хүүгийн түвшин буурна гэж тухайн бондын хөрөнгө оруулагчид хүлээлттэй нөхцөлд урт хугацааны бонд худалдан авах замаар өөдрөг алхам буюу хувьцаа худалдан авч хүүгийн өөрчлөлттэй хамааралтай үнийн өөрчлөлтийг нэмэгдүүлэх алхам хийнэ.
2. Because the impact of an interest-rate change is much greater on long-term securities, the investor generally looks for extended maturities.
Хүүгийн түвшиний өөрчлөлтийн нөлөөлөл нь урт хугацааны үнэт цаасанд асар их нөлөөлдөг учираас тухайн хөрөнгө оруулагч нь хэлцэл биелэх хугацааг өргөтгөхийг эрмэлздэг.
3. There is the impact of various changes in yields on bond prices for a 12 and 6 percent coupon rate bond.
There is the impact of various changes in yields on bond prices for a 12 and 6 percent coupon rate bond.
12 ба 6%-ын хүүтэй бондын хувьд үнэлгээнд нь өөрчлөлтүүдийн янз бүрийн нөлөөлөл байдаг.
4. For example, looking at the -2% line for the 12 percent coupon bond in the upper part of the table, we see a 2 percent drop in competitive yields would cause a 1.86 percent increase in value for a bond with 1 year to maturity but an 18.93 percent increase in value for a bond with 30 years to maturity.
(For example, looking at the -2% line for the 12 percent coupon bond in the upper part of the table), ((we see a 2 percent drop in competitive yields) would cause a 1.86 percent increase in value for a bond with 1 year to maturity) (but an 18.93 percent increase in value for a bond with 30 years to maturity).
Тухайлбал, доорх хүснэгтийн дээд тал дахь 12%-ын хүүтэй бондын хувьд -2%-ын шулууныг харахад төлөвлөж буй орлого нь 2%-иар буурахад 1 жилийн хэлцэл биелэх хугацаатай бондын үнэлгээ 1.86%-иар өсөх болов ч 30 жилийн хугацаанд хэлцэл нь биелэх бондын үнэлгээ нь 18.93%-иар буурна.
5. Assume we buy 20 year, $1,000 Aaa bonds at par providing a 12 percent coupon rate.
Assume we buy 20 year, $1,000 Aaa bonds at par providing a 12 percent coupon rate.
20 жилийн хугацаатай бондын хувьд нэрлэсэн үнээрээ 12%-ын хүү өгнө.
6. Further assume interest rates on those bonds in the market fall to 10 percent.
Further assume2 (interest rates on those bonds in the market fall to 10 percent)1.
Зах зээл дэх эдгээр бондын хүү 10% унана гэсэн төсөөлөлттэй байна.
7. Based on table below, the new price on the bonds would be $1,171.60($1,000 x 117.16).
Based on table below, the new price on the bonds would be $1,171.60($1,000 x 117.16).
Доорх хүснэгтээс харахад, бондын шинэ үнэлгээ нь $1,171.60($1,000 x 117.16)болно.
8. Although we could assume the gain in price from $1,000 to $1,171.60 occurred very quickly, even if the time horizon were one year, the gain is still 17.16 percent.
Ханшийн өсөлт 1000-1,171.60 ам доллар болж хурдацтай нэмэгдэнэ гэсэн хүлээлттэй байгаа хэдий ч хугацааны хувьд нэг жил байхад ч өсөлт нь 17.16% байна.
9. An integral part of many bond-interests-rate strategies is the use of margin or borrowed funds.
An integral part of many bond-interests-rate strategies is the use of margin or borrowed funds.
Бондын хүүгийн түвшиний стратегийн нэгээхэн хэсэг нь барьцаа буюу зээлсэн хөрөнгийг ашиглах явдал юм.
10. For government securities, it is possible to use margin as low as 5 percent, and on high-quality or corporate bonds, the requirement is generally 30 percent.
(For government securities, it is possible to use margin as low as 5 percent, and on high-quality or corporate bonds)1, (the requirement is generally 30 percent)2.
Засгийн газрын үнэт цаасны хувьд, 5%-иас бага барьцаа болон шалгуур нь ерөнхийдөө 30% байх компанийн бонд буюу өндөр чанартай бондыг ашиглах боломжтой.
11. In the preceding case, if we had put down 30 percent cash and borrowed the balance, the rate of return on invested capital would have been 57.2 percent:
((In the preceding case, if we had put down 30 percent cash)1 and borrowed the balance)2, the rate of return on invested capital would have been 57.2 percent:
Өмнөх жишээний хувьд, 30%-ын бэлэн мөнгө хадгалуулсан бол хөрөнгө оруулсан капиталын хэмжээ 57.2% байх болно:
12. Although we have to pay interest on the $700 we borrowed, the interest on the bonds would have partially or fully covered this expense.
Хэдийгээр, зээлсэн 700 ам доллароос бид хүү төлөх ёстой хэдий ч бондын хүү нь энэхүү зарлагыг хэсэгчлэн болон бүрэн даатгана.
13. Also, if interest rates drop further to 8 percent, our leveraged return could be over 100 percent on our original investment.
Also, (if interest rates drop further to 8 percent)1, (our leveraged return could be over 100 percent on our original investment)2.
Гагцхүү хүүгийн түвшин цаашдаа 8% хүртэл буурсан нөхцөлд хөшүүрэгтэй өгөөж нь анх оруулсан хөрөнгө оруулалт 100%-иас дээш гарна.
Listening and Speaking
Tape script 3
¢ Customer: hello, this is Mr Kolodziejczyk. I have a current account and a mortgage with you, and I’m calling for some information about loans.
¢ Bank: Yes Mr Kolo…, yes sir, what would you like to know?
¢ Customer: I’d like to borrow 25,000 to buy a boat, and I’d like to know what interest rate you’d charge.
¢ Bank: Well, our personnel loans currently have a typical annual rate of six point four percent.
¢ Customer: Six point four, yes. But could you tell me about secured loans? I read something somewhere about them being cheaper.
¢ Bank: yes, of course. That’s right. If the loan is secured against home, a life assurance policy or another suitable asset, the typical annual rate is only five percent. What type of security do you have in mind?
¢ Customer: Yes, I’ve nearly paid off my mortgage.
¢ Bank: that would probably be acceptable. And the loan can be for any term up to twenty years. When and how are you thinking of paying back?
¢ Customer: well, I’m not sure. I would probably want to repay capital and interest together each month. But it depends. Maybe I’d prefer to pay the interest only, and to repay the capital after five or six years.
¢ Bank: ok. Perhaps it would be better if I sent you an application form for secured loan. Could you give me your name again?
¢ Customer: Kolodzjiejczyk. That’s K-O-L-O-D-Z-I-E-J-C-Z-Y-K. it’s Polish
¢ Bank: yes, thank you. And your first name?
¢ Stephen. Well actually it’s Szczepan-S-Z-C-Z-E-P-A-N – but these days I spell it S T E P H E N. You have my address. I’m sure I’m the only Stephen Kolodziejczyk at your branch. But can I leave you a new mobile number? It’s zero seven eight, nine one nine, double three seven two.
Vocabulary
Current account – харилцах данс
Mortgage – орон сууцны зээл
Charge – ноогдуулах, төлөх
secured loans – баталгаат зээл
personnel loans – хэрэглээний зээл
annual rate – жилийн хүү
life assurance policy – амьдралын даатгалын гэрээ
paying back – эргүүлэн төлөх
application form – өргөдлийн маягт
suitable asset – тохирох хөрөнгө
Exercise
Read and discuss forms of fixed income securities
There are many significant forms of debt instruments from which the investor may choose, and they are primarily short term in nature.
Certificates of deposit are provided by commercial banks and savings and loans (or other thrift institutions) and have traditionally been issued in small amounts such as $1,000 or $10,000, or large amounts such as $100,000. The investor provides the funds and receives an interest-bearing certificate in return.
Commercial paper, which is issued by large corporations to the public. Commercial paper usually comes in minimum denominations of $25,000 and represents an unsecured promissory note.
Banker acceptance is a draft drawn on a bank for approval for future payment and is subsequently presented to the bank for payment.
Money market funds represent a vehicle to buy short-term fixed-income securities through a mutual fund arrangement.
Money market accounts introduced by financial institutions in the 1980s to compete with money market funds. These accounts pay rates generally competitive with money market funds and normally allow up to three withdrawals(checks) a month without penalty.
Problem solutions
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A 4-year maturity bond with a 14 percent coupon rate can be bought for $1,200. What is the yield to maturity if the coupon is paid annually? What if it is paid semiannually? You will need a spreadsheet or a financial calculator to answer this question.
(14%-ын хүүтэй 4 жилд хэлцэл нь биелэх бондыг 1200 ам доллараар худалдан авсан. Бондын хүүг жилийн хугацаанд төлөх нөхцөлд хэлцэл биелэх хугацааны орлого ямар байх вэ? Хагас жилээр төлөх нөхцөл ямар байх вэ? Та энэхүү асуултыг хариулахын тулд тооцоолох хэрэгсэл ашиглана уу)
PV=PV (coupons) + PV (final payment) = (coupon x annuity factor) + (face value x discount factor) = $140 x = $463.70 + $735.03 = $1,199.
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Маркетинг, менежмент, нягтлан бодох бүртгэл, санхүү, статистик, экономиксийн англи нэр
томъёог орчуулах хэрэгцээ гарвал дараах толь бичгийг ашиглах боломжтой.
