Secured Bonds and Callable Bonds Assignment Help Features of Callable Bonds
A callable bond may be defined as a fixed rate bond in which the issuer has the right, but not the obligation to repay the face value
of the security at a pre-agreed value prior to the final original maturity of the security. Callable bonds have several special features that make callable bonds attractive to an issuing corporation. For instance, a callable bond can be redeemed by the issuer prior to its maturity (Deacon, Derry & Mirfendereski, 2004). In addition, the underlying asset (debt security) has a variable life. The call option has multiple exercise dates. An issuer may choose to redeem a callable bond, when current interest rates drop below the interest rate on the bond. In that way, the issuer can save money by paying off the bond and issuing another bond at a lower interest rate. Along with this, it provides different facilities such as: optional redemption, sinking fund redemption and extraordinary redemption (Johnson, 2010).
Secured Bonds Secured bonds are the bonds secured by the issuer’s pledge of a specific asset, which is a form of collateral on the loan. The most common form of secured bonds is mortgage bonds. These bonds are backed by real estate or physical equipment that can be liquidated. Some bonds would be classified as secured bonds. It is because, secured bonds provides fixed rate of income (Bergström, Eisenberg & Sundgren, 2002). In addition, secured bonds are less risky as compared to other bonds. In addition, there are several kinds of secured bonds. For example, mortgage, guaranteed, equipment and collateral bonds are the common types of secured bonds. Equipment bond is issued by the transportation companies and is backed by the equipments they own. On the other hand, mortgage bonds are backed by the property that the issuer owns. Additionally, collateral bonds are backed by the financial assets that the issuer owns. Guaranteed bonds are backed by a business firm other than the original issuer (Deacon, Derry & Mirfendereski, 2004).
Bonds at the Premium & Discount When then bonds are issued at premium and discount, then they are telling investors that the purchase price of the bond is either above or below its par value (Bergström, Eisenberg & Sundgren, 2002). For example, if a bond with a par value of $1,000 is selling at a premium when it can be bought for more than $1,000 and is selling at a discount when it can be bought for less than $1,000. So, bonds issued at a premium, which means bond is above the par value of bond. In contrast, bond issued at a discount means, bonds is below its par value. The bonds at the premium and discount will be based on changing interest rates. Along with this, it should also be noted down that when interest rates go up, a bond’s market price will fall and vice versa (Johnson, 2010). So, premium and discount of the bonds shows profit and loss for the issuing authority/company. References Bergström, C., Eisenberg, T. & Sundgren, S. (2002). Secured debt and the likelihood of reorganization. International Review of Law and Economics, 21(4), 359-372. Deacon, M., Derry, A. & Mirfendereski, D. (2004). Inflation-Indexed Securities: Bonds, Swaps and Other Derivatives. UK: John Wiley & Sons. Johnson, R. S. (2010). Bond Evaluation, Selection, and Management, + Website. UK: John Wiley & Sons. Get 24X7 assignment help services of all subjects. From our experts you will get complete and original assignment help with minimum prices. You can call us or e-mail us your assignment to us for free quote.