...Corporate Bond Market in the Transition Economy of Vietnam, 1990-2010 VUONG, Quan-Hoang and TRAN, Tri Dung Corporate bond appeared early in 1992-1994 in Vietnamese capital markets. However, it is still not popular to both business sector and academic circle. This paper explores different dimensions of Vietnamese corporate bond market using a unique, and perhaps, most complete dataset. State not only intervenes in the bond markets with its powerful budget and policies but also competes directly with enterprises. The dominance of SOEs and large corporations also prevents SMEs from this debt financing vehicle. Whenever a convertible term is available, bondholders are more willing to accept lower fixed income payoff. But they would not likely stick to it. On one hand, prospective bondholders could value the holdings of equity when realized favorably ex ante. On the other hand, the applicable coupon rate for such bond could turn out negative inflationadjusted payoff when tight monetary policy is exercised and the corresponding equity holding turns out valueless, ex post. Given the weak primary market and virtually nonexistent secondary market, the corporate bond market in Vietnam reflects our perception of the relationshipbased and rent-seeking behavior in the financial markets. For the corporate bonds to really work, they critically need a higher level of liquidity to become truly tradable financial assets. JEL Classifications: G32, G38, O16 Keywords: Vietnam; Corporate Bond; Interest...
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...____________ABC_______________ Student Name: ____________ABC_____________ Student Signature: ____________Anh__________________________ Date of Submission: ____________March 14th, 2010________________ Name of first marker: Mark: Name of second marker: Mark: DISSERTATION PROPOSAL ON VIETNAMESE CORPORATE BOND MARKET: THE CAUSES OF UNDERDEVELOPMENT BY ABCDEF ABCDEF ID: 123456789 14th March, 2010 Table of contents 1. Background of study 4 1. Structure of literature review 6 2. Significance of study 6 3. Research questions and objectives 7 1. Research questions 7 2. Research objectives 7 4. Research methodology 8 1. Research design 9 2. Data collection 9 3. Ethical permission 9 5. Time scale 9 1.6.0 Resources 10 References 11 Appendix 1 12 1. Background The corporate bond market is an important link between savings and investments with the publicly traded debt instruments issued by...
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...SOURCES OF CORPORATE DEBT AND BOND COVENANTS Corporate debts may be short term or long term in nature. Short - term debts are incurred by the company in relation to its supplies of raw materials categorized as accounts payables and are normally paid within the accounting cycle or within one year. In the balance sheet, they fall under the current liabilities. These are supposed to be financed through the company’s current assets. Long term debts are those acquired by the company from banks and through issuance of bonds. For loans from banks, the requirements of the lenders are normally: evidences of the company’s sound financial standing as reflected in its financial statements, effective management, nature of products (quality), and good track record of credit relationship with other fund providers. At times, they must be backed by collaterals. Another option by which a company acquires addition funds is to issue bonds. This is a long term obligation of the company (issuer) to the bondholder to pay fixed interest rates periodically until the maturity date when the company must have to return the par value to the bondholder and terminates or redeem the bond. Hence, the financial obligation of the issuer or the company who opted to issue bonds for additional funds are: periodic fixed interest payments until the maturity date and the payment of the par value of the bond on the maturity date. The income of the bondholder is the periodic interest received (for coupon bonds) or the...
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... |3.1 | |AAA corporate |3.2 | |BBB corporate |4.2 | |B corporate |4.9 | • a. What is the price (expressed as a percentage of the face value) of a one-year, zero-coupon corporate bond with a AAA rating? • b. What is the credit spread on AAA-rated corporate bonds? • c. What is the credit spread on B-rated corporate bonds? • d. How does the credit spread change with the bond rating? Why? 30. HMK Enterprises would like to raise $10 million to invest in capital expenditures. The company plans to issue five-year bonds with a face value of $1000 and a coupon rate of 6.5% (annual payments). The following table summarizes the yield to maturity for five-year (annual-pay) coupon corporate bonds of various ratings: Rating |AAA |AA |A |BBB |BB | |YTM |6.20% |6.30% |6.50% |6.90% |7.50% | |a. Assuming the bonds will be rated AA, what will the price of the bonds be? • b. How much total principal amount of these bonds must HMK issue to raise $10 million today, assuming the bonds are AA rated? (Because HMK cannot issue a fraction of a bond, assume that all fractions are rounded to...
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...Chapter 4 Answers to Concept Review Questions 1. Managers need to understand how bonds and stocks are priced because (1) firms regularly issue stocks and bonds to raise money for investment (2) understanding how securities are priced is helpful when conducting an acquisition or a divestiture, (3) the stock price is an objective signal of how managers are performing, and (4) finance theory teaches that the goal of the manager should be to maximize the firm’s stock price. 5. The coupon rate equals the annual coupon payment divided by par value. The coupon yield equals the annual coupon payment divided by the bond’s market price. 6. A bond sells at a discount when the bond’s coupon rate is lower than the market’s required rate of return on the bond. 11. An issuer benefits from an option to call a bond, because such an option allows the issuer to lock in a more favorable interest rate if rates should fall.. The option to convert bonds into common stock benefits bondholders. Once the stock price rises high enough, the value of the bonds starts to behave like the stock’s value—the prices start to rise. So convertible bonds offer investors some minimal level of return plus a lot of upside potential. 13. The price of a Treasury note quoted as 98:10 is 98 10/32 percent of par value or $983.125. Answers to End-of-Chapter Questions Q4-1. What is the relationship between the price of a financial asset and the return that investors require on that asset, holding...
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...terms as they apply to bonds: a. Face value b. Maturity date c. Coupon interest (including coupon interest rate) d. Current yield e. Yield to maturity (YTM) f. Yield to call (YTC) g. Call premium 2. What are “Zero-coupon” bonds? 3. Suppose you see the following bond price quote in the newspaper: McDonalds 5.7% 2039……..122.733 What can you tell about this bond from reading the price quote? 4. (calculating the present value of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a yield to maturity (YTM) of 4.201%, what should be its price in the bond market (ie, PV)? 5. (calculating the current yield of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its current yield? 6. (calculating the YTM of a bond) If a corporate bond with a face value of $1,000 has 24 years to go until it matures, has a coupon interest rate of 5.7% and a market price of $1,223.92, what is its yield to maturity (YTM)? 7. (calculating the YTC of a bond) Assume a callable corporate bond with a face value of $1,000, a coupon interest rate of 5.7%, a market price of $1,223.92, and a call premium of 6%. Assume also that the bond has 24 years to go until it matures, but it is callable after 14 years. What is the bond’s yield to call (YTC)? 8. (calculating the present value of a bond with semi-annual coupon...
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...related to its degree of financial sector development. Developed countries’ experience suggests that strong government bond market creates favorable environment for the development of an efficient corporate bond market although it is not always essential for a country to develop a government securities market. The financial markets, pivotal point of financial sector, execute a crucial role within the global economic system such as attracting and allocating savings, setting interest rate and discovering the prices of financial assets (Rose, 2003). A well diversified financial sector is highly dependent on the extreme collaboration of financing from equity market, bond market, and banks. The government bond market forms the backbone of a modern securities market in both developed and developing countries. Bangladesh has not been blessed with the contribution of both Corporate and Government bonds and consequently experiences the poor economic growth. With the current financial structure, characterizing the dominating presence of commercial banks, particularly the State Owned Commercial Banks (SCBs), the debt market of Bangladesh is very small relative to other South Asian countries amounting only 5.5 percent of country’s GDP (Mujeri and Rahman 2008). It is in the light of above perspective; this report seeks to explore some prerequisites to a sustainable bond market by studying available literature, especially for the Government segment, and putting some instructions for the...
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...Corporate Bond What Does Corporate Bond Mean? A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds. Corporate bonds are considered higher risk than government bonds. As a result, interest rates are almost always higher, even for top-flight credit quality companies. Investopedia explains Corporate Bond Corporate bonds are issued in blocks of $1,000 in par value, and almost all have a standard coupon payment structure. Corporate bonds may also have call provisions to allow for early prepayment if prevailing rates change. Corporate bonds, i.e. debt financing, are a major source of capital for many businesses along with equity and bank loans/lines of credit. Generally speaking, a company needs to have some consistent earnings potential to be able to offer debt securities to the public at a favorable coupon rate. The higher a company's perceived credit quality, the easier it becomes to issue debt at low rates and issue higher amounts of debt. Most corporate bonds are taxable with terms of more than one year. Corporate debt that matures in less than one year is typically called "commercial paper". Capital Markets What Does Capital Markets Mean? A market in which individuals and institutions trade financial securities. Organizations/institutions...
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...(5–1) Jackson Corporation’s bonds have 12 years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds? 0 1 2 3 4 5 6 7 8 9 10 11 n=12 PV 80 80 80 80 80 80 80 80 80 80 80 80 Par Vaule= $1,000.00 Coupon interest rate = 8% Par value = $1,000.00 Payment = Par value x coupon rate Payment = $1,000.00 x 0.08 Payment = $80.00 Yield to maturity = 9% The current market price of the Jackson Corporation's bonds are calculated as follows. =PV(Rate, Nper, Payment, FV, Type) =PV(9%,12,80,1000,0) [pic] The current market price of Jackson Corporation's bonds is $928.39. (5–3) Heath Foods’s bonds have 7 years remaining to maturity. The bonds have a face value of $1,000 and a yield to maturity of 8%. They pay interest annually and have a 9% coupon rate. What is their current yield? 0 1 2 3 4 5 6 n= 7 PV 90 90 90 90 90 90 90 Par Vaule= $1,000.00 Coupon interest rate = 9% Par value = $1,000.00 Payment = Par value x coupon rate Payment = $1,000.00 x 0.09 Payment = $90.00 Yield to maturity 8% The current yield for Heath Food's bond is calculated as follows. Current Yield=current payment/current price Current Yield = $90.00/Present Value =PV(Rate, Nper, Payment, FV, Type) =PV(8%,7,90,1000,0) [pic] Current Yield= $90.00/$1052...
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...the following four debt securities, which are identical in every characteristic except as noted: W: A corporate bond rated AAA X: A corporate bond rate BBB Y: A corporate bond rated AAA with a shorter time to maturity than bonds W and X Z: A corporate bond rated AAA with the same time to maturity as bond Y that trades in a more liquid market than bonds W, X, or Y. List the bonds in the most likely order of the interest rates (yields to maturity) of the bonds from highest to lowest. Explain your work. The bond with the highest risk is going to be your BBB bond. A BBB bond is rated at a higher risk and will most likely yield the highest interest rates. BBB bonds fall into what is considered to be a lower medium grade bond and is just above the non-investment grade of bonds. The next below in high risk is going to be your AAA rated bond. AAA bonds are very low in risk in nature depending on their yield to maturity. The AAA bond is placed here because we are unaware of the duration of the bond. That is why the next less risky bond is the AAA bond with a shorter time to maturity than W and X. The reason behind this is that the bond has a less likely chance of its value being diminished. The longer the term, the higher the chance there is that something could happen in the market that could destroy the wealth of the bond. The least risky of the bunch is going to be bond Z that trades in a more liquid market than the others. The reason this is less risky is because there are...
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...Bond Market INTRODUCTION Presently, as there is a robust growth of industrial activity in our economy, the need for investment has grown significantly and has resulted in a strong credit growth Some disintermediation is expected to take place as the most creditworthy borrower seeks the lowest borrowing costs. This development has re-emphasized the fact that bond financing has to supplement the traditional bank financing to take care of the growing credit needs of the economy. The Indian debt market, particularly the government securities market, has undergone a significant transformation since the introduction of reforms in the financial markets in 1991-92. The primary objective behind the reforms has been to moderate liquidity growth, contain inflationary pressure, and conduct public debt management in a cost-effective manner. Various reforms have also been undertaken in the corporate debt market. The corporate bond market is an important segment of the financial market in terms of funds raised well as potential for future growth. The Securities and Exchange Board of India (SEBI) was established in 1992, to regulate the primary issue in equity and de markets and to ensure sound trading practices in the secondary market throu stock exchanges. The bond market is an important source of funding for both t government and corporate sector. The bond market, also known as the debt, credit, or fixed income market, is a market where participants buy and sell debt securities...
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...considerations are bonds (corporate and municipal), stocks (commom and preferred), mutual funds and derivatives. We will analye the risk and return issues associated with each for a portfolio. Finally, we will provide rationale for each of the portfolio selections. The investment process is an investor’s portfolio of his or her assets. We know assets are “anything tanible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value” (“Assets,”). As the portfolio is established, it starts to update once the investor begins to sell securities, buy securities and get additional funds to increase the size of its portfolio. However, investors do sell securities to decrease their portfolio. There are a few key points an investor should note when making investments. One should always create a portfolio based on asset classes which have long term up trends. Secondly, an investor should not buy investments at random and believing for the best. Thirdly, the investor should always monitor the funds. This can be done quarterly to optimize returns on their holdings, returns rankings and etc… Finally, but nottheless, an investor should utilize monitioring organizations. Some of these organizations are CDS Weinberger, Morningstar, Value Line Investment Survey Professional Edition and Standard & Poors. The investor has several different classes for investment assets. These classes are real estate, stock, bonds, commodites...
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...the interest rates on default-free government bonds with different terms to maturity is called A) a risk-structure curve. B) a default-free curve. C) an interest-rate curve. D) a yield curve. (v) When yield curves are steeply upward sloping, A) short-term interest rates are above long-term interest rates. B) short-term interest rates are about the same as long-term interest rates. C) medium-term interest rates are above both short-term and long-term interest rates. D) long-term interest rates are above short-term interest rates. (vi) If the expected path of one-year interest rates over the next five years is 4 percent, 5 percent, 7 percent, 8 percent, and 6 percent, then the expectations theory predicts that today's interest rate on the five-year bond is A) 4 percent. B) 5 percent. C) 6 percent. D) 7 percent. (vii) According to the liquidity premium theory of the term structure A) because buyers of bonds may prefer bonds of one maturity over another, interest rates on bonds of different maturities do not move together over time. B) because of the positive term premium, the yield curve will not be observed to be downward sloping. C) the interest rate on long-term bonds will equal an average of short-term interest rates that people expect to occur over the life of the long-term bonds plus a term premium. D) the interest rate for each maturity bond is determined by supply and demand for that maturity bond. Chapter 5 Q10. Suppose investors expect 1-year...
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...of bonds: namely, the 1-year zero coupon bond. However, there are many types of bonds: bonds with different maturity, bonds issued by different parties (i.e. government vs. corporate), etc. As a result, there is a different interest rate for each type of bond. We will look at the behavior of interest rates of two groups of bonds: (1) Bonds with the same features but are issued by different agency. In other words, we want to look at the risk structure of interest rates. (2) Bonds issued by the same agency but have different term to maturity (i.e. life of the bond). In other words, we want to look at the term structure of interest rates. 1. Risk structure of interest rate As we have discussed in the previous section, the (relative) risk level of an asset affects its demands according to the theory of asset demand. The higher the relative risk level, the lower the demand of that asset. According to the theory of asset demand, this leads to an increase in interest rate. In other words, investors need to be compensated with a higher return (in the form of higher interest rate) in order to induce them to hold the assets. There are a number of factors that affect the risk level of a bond. In this section, we will focus on only 3 of them: default risk, liquidity, and tax consideration. (i) Default risk Default risk represents the probability (or chance) that the issuer of the bonds will not be able to pay the coupon payments on time and the principal on the maturity date. The bond issuer...
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...1. [Treasury Bonds, Notes & Bills: 24 Points] a. (2 points) From your Barron’s, find a Treasury bill maturing in three months from the date of your Barron’s in 2015. For example, if the date of your Barron’s is February 15 (October 1, 2015), then choose a Treasury bill maturing around May 15 (January 1, 2016). * Find a Treasury bond or note maturing one year from the date of your Barron’s in 2015. For example, if the date of your Barron’s is February 15, 2015, then choose a Treasury bond or note maturing in February 2016 * b. (10 points) Referring to the Treasury bill chosen on Question (a) above, compute a “number of days to maturity” on the Treasury bill from the date of your Barron’s to its maturity date. For example, if the date of your Barron’s is February 15, and the maturity date of the Treasury bill is May 15, then there will be 89 days to maturity (13 + 31 + 30 + 15). [Show your computation work] * Maturity date – Sept 24, 2015; Barron Date – June 22, 2015 * 8 + 31 + 31 + 24 = 94 number of days to maturity Compute actual asked dollar price of the Treasury bill, assuming $1,000 face value. [Show your computation work] * 99.857 x 10 = 998.57 Using the annual coupon payment and the actual asked dollar price that you computed above, compute the yield to maturity of the Treasury bond, assuming the next coupon payment will be given on the maturity day. [Show your computation work] I = F –P / F x 360 / days to maturity =...
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