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In finance, a bond is a type of security under which the issuer owes the holder a debt, and is obliged – depending on the terms – to provide cash flow to the creditor (e.g. repay the principal (i.e. amount borrowed) of the bond at the maturity date as well as interest (called the coupon) over a specified amount of time. [1])
In finance, a holdout problem occurs when a bond issuer is in default or nears default, and launches an exchange offer in an attempt to restructure debt held by existing bond holders. Such exchange offers typically require the consent of holders of some minimum portion of the total outstanding debt, often in excess of 90%, because, unless the ...
Equity premium puzzle: The equity premium puzzle is thought to be one of the most important outstanding questions in neoclassical economics. [6] It is founded on the basis that over the last one hundred years or so the average real return to stocks in the US has been substantially higher than that of bonds.
The latter are bonds that are, under contracted-for conditions, convertible into shares of equity. The stock-option component of a convertible bond has a calculable value in itself. The value of the whole instrument should be the value of the traditional bonds plus the extra value of the option feature. If the spread (the difference between the ...
The term GDP-linked bond is often used interchangeably with the terms GDP-indexed bond, GDP-linked security, and GDP-indexed security in the literature. Sometimes the term warrant is used as well. This is likely because it is a relatively new asset class in which there are few real examples—the few of which were created from restructurings ...
This assumption is useful in pricing fixed income securities, particularly bonds, and is fundamental to the pricing of derivative instruments. Economic equilibrium is a state in which economic forces such as supply and demand are balanced, and in the absence of external influences these equilibrium values of economic variables will not change.
The use of the term "fixed" does necessarily not mean the asset "stays in one place", i.e., it does not mean that it is physically immobile, but it refers rather to the circulation (rotation) of flows of capital. Normally, for the purpose of accounting, fixed investment refers to "physical assets held for one year or more". The investment ...
For example, if the annual coupon of the bond were 5% and the underlying principal of the bond were 100 units, the annual payment would be 5 units. If the inflation index increased by 10%, the principal of the bond would increase to 110 units. The coupon rate would remain at 5%, resulting in an interest payment of 110 x 5% = 5.5 units.