Bonds face value

The simplest way to speculate is simply to buy bond call options. The ATM calls struck at 116.50 are priced at 1.18, so buying these options on a notional bond face value of 100 million would involve buying 996 contracts, and would cost 1.18 million. Exhibit 17.23 illustrates the resulting payoff profile. 

Bond prices are expressed per 100 nominal —that is, as a percentage of the bonds face value. (The convention in certain markets is to quote a price per 1,000 nominal, but this is rare.) For example, if the price of a U.S. dollar—denominated bond is quoted as 98.00, this means that for every 100 of the bond s face value, a buyer would pay 98. The principles of pricing in the bond market are the same as those in other financial markets the price of a financial instrument is equal to the sum of the present values of all the future cash flows from the instrument. The interest rate used to derive the present value of the cash flows, known as the discount rate, is key, since it reflects where the bond is trading and how its return is perceived by the market. All the factors that identify the bond—including the nature of the issuer, the maturity date, the coupon, and the currency in which it was issued— influence the bond s discount rate. Comparable bonds have similar discount rates. The following sections explain the traditional approach to bond pricing for plain vanilla instruments, making certain assumptions to keep the analysis simple. After that, a more formal analysis is presented. 

Similarly, the distinction between current and long-term liabihties is also not clear-cut. Current liabilities include accounts payable (money owed to creditors), taxes payable, dividends payable, etc., if due within a year. Long-term liabihties include deferred income taxes, bonds, notes, etc., that do not have to be paid within a year. The owners equity includes the par, or face, value of the capital received from stockholders and any retained earnings. The balance sheet shows only the nominal value and not the current or real value of this capital. 

Bonds are promissory notes that can be issued by corporations or governmental bodies. They are contracts in which the seller agrees to pay the owner the face value (called par value) of the bond at a certain date (maturity or due date) and a given amount of interest at various stated times. Bonds can be sold to individuals, but... 

A value of A = 0 would be expected if the metal was centered over the G2B3 bonding face of the carborane. A positive value indicates... 

From my estimates on the thermodynamic properties of peroxy and polyoxide molecules and radicals, we can estimate that the bond dissociation energy of the tetroxide is about 5 kcal. Thus, at room temperature, or even at dry ice temperature, the tetroxide is extremely unstable and should redissociate into the more stable (from a thermodynamic point of view) peroxy radicals. The competing step would be a concerted decomposition into an RO and an R03 (Step 14) radical, which would be uphill by 20 kcal., or else a concerted decomposition into 2 RO radicals and 02 (Step 14 ). The latter is almost thermoneutral. If we take the current data at face value, it provides, from the reported activation energy at least, strong evidence that the propagating interaction of two alkylperoxy radicals proceeds in a concerted fashion. 

Bond A long-term debt-type of security generally issued by corporations or governments to generate cash. The coupon rate is the interest rate paid to the bondholder. The maturity date is when the face value of the bond will be paid to the bondholder. 

The owners funds, or equity, include the issued capital (i.e. the face value of the company s shares), capital reserves (funds received in ways distinct from operating profits, such as premiums on the sale of shares) and revenue reserves, which are the accumulated annual profits earned. The long-term loans include not only the sums borrowed from hanks and finance houses as well as bonds issued by the company, but also the provisions for future potential (but as yet unknown) costs for example the sums a company involved in asbestos liability litigation would prudently set aside against possible penalties and costs. Current liabilities include all bills received but not yet paid (for goods and services), and any short-term loans, due within a year, such as bank overdrafts. 

Companies in need of more capital can also raise it by selling bonds. A bond is a certificate, with a face value usually much larger than that of a share, which has a fixed lifetime, usually 10 years at least, at the end of which time the bond matures and the company pays back its face value (by then, of course, much decreased in real value). However, the company also guarantees to pay interest at a fixed percentage of the bond s face value for this lifetime, usually twice a year, and this rate is usually quite an attractive one. 

Bonds can be bought and sold, like shares, on a special bond trading market, and their trading value will vary around the face value (usually without the spectacular changes that can occur with shares). The key characteristics of a bond are the guaranteed repayment of capital and annual interest payment (so long as the company survives to the maturity of the bonds), but, unlike a share, no ownership rights are conveyed with a bond. 

The observation [22] that several carbon atoms may be united by means of one, two or three valencies C-C, C=C, C=C, has also been incorporated, at face value, into electronic theories of chemical bonding and provided with a quantum gloss. In many cases, actual relationships within molecules are too complicated to be represented by simple graphs, and the supposed quantum effects assumed to be at work in these situations led to the invention of pseudo-scientific concepts such as hybridization and resonance. This patch-work is still featured as the quantum theory of chemical bonding. 

Less is known about the relative Importance of solvent-solute hydrogen bonding in affecting solvent selectivity, although several workers have postulated such effects (e.g., /. 42, 43). However, one must be cautious in accepting these various observations at face value, because solvent-solute localization effects will normally be large in systems that can ex-... 

The fact that refractory metals, with high heats of atomization ( 400 kJ mol-1), and a generally inert molecule such as CO are capable of uniting to form stable, molecular compounds must certainly be considered, at face value, surprising, especially when it is noted that the CO molecules remain as individuals in the resulting molecules. Moreover, it is known that the simple Lewis basicity (donor ability) of CO is negligible. However, the explanation lies in the multiple nature of the M—CO bond, for which there is much evidence, some of it semiquantitative. 

This implies that the payoff of a caplet clet t, Tq, 7i) = leti To) is equivalent to a put option on a zero-coupon bond P t,T) with face value = 1 + ACR and a strike price AT = 1. Therefore, we obtain the date-t price of a caplet... 

At the heart of the Merton s assumptions, equity holders have an embedded put option by which if at maturity the firm value is greater than promised obligation ox face value, the lender gets back the bond s amount and shareholder maintains the ownership of the company otherwise, if the firm value is lower than the promised payment, the bondholders receive an amount less than bond s face value and the firm defaults. Therefore, in the case of high-put option value, shareholders will have an advantage to walk away from the loan payment, leaving the asset value to the bondholders. 

There are fixed-rate bonds with at least one year to maturity and minimum outstanding amounts (face value) of 300 million and 150 million. 

The first linker to be issued was a 20-year bond with a zero-coupon structure (No. 3001, 0% 2014). A selection of the eight Primary Dealers in the nominal market took responsibility to quote two-way prices for the new bond. The Debt Office held five common price auctions from April to June, which saw a face value of SEK16 billion being offered to the market. But demand for much higher real yields from the market meant that only SEK6.7 billion was allotted. 

An option gives the holder the right to execute a specific transaction. For example, a bond option might allow the holder to buy 100 face value of a particular bond, in three months time, at the fixed price of 98. If the bond price is above 98 three months from now, the owner of the option would be happy to exercise his option, pay over the 98 and receive delivery of the bond, which is worth more than 98. 

The buyer of a bond futures contract at 98 would also save 1 for every 100 face value of bonds, if these bonds eventually traded at 99. However, the buyer would not be able to benefit if the underlying bonds dropped to 97. He or she would still be obliged to buy them at 98. Futures—and similar financial instruments— lock the counterparties into a trade at a specific price. They confer a right, and an obligation, which must be honoured, whether or not it is financially advantageous. Options confer a right, but not an obligation—that s the key difference. 

One contract in the underlying future, which in turn represents a bond with 100,000 face value. In percentage points, to two decimal places. So a price of 1.23 means 1.23% of 100,000. 

By effectively embedding caps and/or floors on a notional principal equal to a multiple of the underlying bond s face value, a company can offer investors significantly higher current yields, but with the risk that future returns could fall markedly if rates rose beyond a certain level. 

In the first two examples, we will look at an investor who, on 7 March 2003, is holding 50 million face value of a German government bond paying a 4.5% coupon, maturing on 4 January 2013, priced at 105.69 to yield 3.80%. 

When the rates have been established they must then be calibrated. The calibration procedure is achieved using the observed market price of a bullet government bond and pricing the bond using the tree calculated rates to obtain the appropriate discount factors. As an example, consider a government bond trading at par and offering a coupon of 4.625% paid semi-annually. On maturity the bond will be redeemed for 102.3125, which is made up of the bond s face value, say 100, and one half of the annual coupon, 2.3125. 

We will use the Vasicek model for pricing a 3-year European call option on a 10-year zero-coupon bond with face value 1 and exercise price K equal to 0.5. As in Jackson and Staunton, we use for the parameters of this model the values estimated by Chan, Karolyi, Longstaff, and Sanders for US 1-month Treasury bill yield from 1964 to 1989. Thus a = 0.0154, p = 0.1779, and o = 2%. In addition, the value of the short... 

Taking the same example as that developed to demonstrate the Vasicek model earlier, we now price the 3-year European call option on a 10-year pure discount bond using the CIR model for the short interest rates. Recall that face value is 1 and exercise price K is equal to 0.5. As in the example with the Vasicek model, we consider that o = 2% and tq = 3.75%. The CIR model overcomes the problem of negative interest rates (acknowledged as a problem for the Vasicek model) as long as 2a > o. This is true, for example, if we take a = 0.0189 and P = 0.24. Feeding this information into the above formulae is relatively tedious. A spreadsheet application is provided by Jackson and Staunton, After some work we get that the price of the call is... 

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