Microsoft Notes
Securities issued on 2013
Yield = (1000 * 0.875%)/ 998.35 = 0.876%
Yield in 2015
Yield = (1000 * 1.625%)/ 995.61 = 1.632%
Yield in 2020
Yield = (1000 * 3.0%)/ 991.36 = 3.026%
Yield in 2040
Yield = (1000 * 4.50%)/ 989.11 = 4.55%
Coca-Cola Enterprises, Inc.
Yield in 2012
Yield = (1000 * 3.750%)/ 995.87 = 3.766%
Yield in 2015
Yield = (1000 * 4.250%)/ 988.77 = 4.298%
Norfolk Southern’s ``century’’ Bond
Issue to the public
Yield = (1000*0.06)/1008.33 = 5.95%
Issue to U.S
Yield = (1000*0.06)/998.33 = 6.01%
IBM floating rate notes
Yield = (1000*0.1)/999.0 = 10.01%
Bonds are instruments of indebtedness of the bond issuer to the holder of such debt securities. They are debt instruments under which the company issuing the bonds owes the owners the obligation and contingent on the terms of the bond and it is indebted to pay the interest which is the coupon as well as the principal amount at maturity period where the interest is paid at fixed dates like annually, semi-annually or quarterly.
The entities tend to issue the bonds to finance their operations as they perceive that direct borrowing from the financial institutions to be more expensive as well as restrictive as compared to selling the debt instruments on the open market by issuing the bonds without diluting the shareholder’s equity. The companies can borrow the money at a fixed rate for a long term period as the entities are spared the regulations and complicated procedures of undergoing various transactions and negotiations in raising the capital it needs. Various risks are associated with the issue of bonds, and they include liquidity risks, reinvestment risk, credit risk, interest rate risk as well as rating downgrades Davis & Rhett).
The ordinary share is usually the core voting stock of an entity, and the companies opt to issue the shares so as to raise funds from the investors who invest in the enterprise. The money is used for the growth as well as development of the company’s business (Holmes, Geoffrey, Alan & Paul). The shareholders of the business tend to get a share of the company’s profits in the form of dividends as well as the aptitude to vote at the general meetings of the shareholders. The risk associated with the issue of the shares of the company is that they dilute the ownership of the existing shareholders, therefore, diminishing the voting power of the shareholders.
Convertible bonds involve dues security that can be transformed into prearranged finances of the underlying enterprise’s equity at particular periods until the bond matures and usually at the decision of the bondholder. The corporations issue the convertible bonds so as to reduce the adverse investor analysis of its entity operations. Avoiding the negative impression of the shareholders, the enterprises choose to issue the convertible bonds that the bondholders are likely to convert into equity where the entity continues efficient operations of its business. There are various limitations associated with the issue of the convertible bonds (Kim, Yong, & Rene). The convertible securities can lead to the risk of diluting the earning per share of the enterprise’s common stock as well as control of the entity. The convertible bonds involve a significant risk of the bankruptcy of the entity as compared to the common and preferred shares.
Reference list
Davis, W. Rhett, et al. "Demystifying 3D ICs: the pros and cons of going vertical." IEEE Design & Test of Computers 22.6 (2005): 498-510.
Holmes, Geoffrey Andrew, Alan Sugden, and Paul Gee. Interpreting company reports and accounts. Pearson Education, 2005.
Kim, Yong-Cheol, and Rene M. Stulz. "Is there a global market for convertible bonds?." Journal of Business (1992): 75-91.
