FI cash flows and types Flashcards
bullet bond
normal bond principal at the maturity
fully amortizing bond
mortgage - one size rate different size of interest and principal (credit risk is lower every period)
partially amortizing bond
part of it will be bullet and part of it will be amortizing
rate is principal and interest and at the end balon rate of the rest of principal
sinking funds
like fully amortizing but every year x% of investors will be payed fully every year.
waterfall structure
like sinking. Interest are paid to all but principals are paid to tranches defined by seniority.
variable interest debt
interest is MRR+spread (constant))
can be:
fixed rates (rates up price down, coupon constant)
floating ratest (rates up, price unchanged, coupon up)
step-up bond
coupon rate steps up over time or is related to some event (eg. if credit quality drops the coupon will rise) less price risk
leveraged loans
loans to issuers of lower credit quality
PIK (payement in kind) bonds
payement of i can be made by increasing the pricipal
index linked bonds
i and p linked to specific index (most common inflation linked)
coupon is not changing, Principle adjust to a CPI change. deflation will not hurt so the lowest we will get is a par
deffered coupon bonds
no i for a few years and then higher i. (constuction projects)
zero coup bond
common type strip we buy a huge coup bond and strip rates to a zero coupon bonds
callable bonds
issuer can call a bond to a maturity.
most common if the rates will drop and we could refinance debt by smaller coup.
ytm>coup no value in calling the bond
ytm<coup proce is capped at call price (investor have a call risk)
putable bond
an investor can make issuer sell bond at some dates. typicaly at par
ytm<coup put has no value (price 104% put 100%)
ytm<coup company faces a put risk
convertible bonds
convertible to a equity
lower yield. every time the more rights investor have the lower the yield
conversion ratio
par value/conversion price (stock)
every bond are worth X shares
Conversion value
conversion ratio*current share price
if the Price(todays price)<conversion> conv trading off the stock.</conversion>
trading off the stock
price> conv trading off the stock. the bond is traded as a conversion price (much more)
forced conversion clause
p0>conv price. ability to call a bond with a lower price not to pay coupon
warrant
long call bonds
Contingent convertible bond (CoCo)
mostly banks. if the capital falls below a regulatory level coco are automatically converted to equity(will have higher yields)
Domestic bonds
US issues in uSD
foregin bons
US issues in CAD
Euro bond
us issues EUR not registered in any country
