Capital appreciation bonds

GOs and revs are the two main muni issuers. They issue a number of different types of munis that include anticipation notes, alternative minimum tax (AMT) bonds, insured bonds, zero-coupon or capital appreciation bonds, and callable and prerefunded bonds. The web site or broker from which you are buying the bonds can describe each in more detail. 

Table 4.15 compares common sulfur removal processes. Amine processes are based on the removal of an acid gas by virtue of a weak chemical bond between the acid gas component and the amine. Amine-based sulfur removal processes are generally regarded as a low capital cost option with part C02 coabsorption. However, amines do not chemically combine with COS. Only limited amounts of COS are absorbed with a physical solvent. COS can be physically removed only with very high solvent circulation rates. For syngases that contain appreciable quantities of COS, prior removal of the COS is usually required. In addition, for some of amine solvents, degradation and corrosion are also main disadvantages of the process. 

Stockholders and lenders. The public firm receives savings from individuals as well as pension and insurance funds to invest. In return, the stockholder receives dividends or interest and stock appreciation. The government firm can return a surplus to the government treasury or perhaps constitute a burden to taxpayers. If the firm did not exist, this capital would be invested elsewhere, perhaps in home mortgages, municipal bonds, commercial paper, or government securities. 

In rising stock markets, beta > 1 benefits from the index appreciation because the probability of rising stock prices and, therefore, to convert the bond will increase. Therefore, a greater beta determines a greater cost of capital and consequently a lower present value of cash flows. This means that the target price of the underlying asset will be lower, reducing the conversion premium. 

The implication of Property 4 is that if an investor is long a bond, the price appreciation that will be realized if the required yield decreases is greater than the capital loss that will be realized if the required yield increases by the same number of basis points. For an investor who is short a bond, the reverse is true the potential capital loss is greater than the potential capital gain if the yield changes by a given number of basis points. 

---