Analysis of collaterals, Financial Management

Assignment Help:

If normal operating revenues are inadequate to repay the debt, liquidation of collateral may be necessary. Corporate bonds can be either secured or unsecured by collaterals. Secured bond holders have a priority over others in case of bankruptcy. Most corporate bonds are meaning they are not secured by collateral. The suitability or appropriateness of any item or asset for use as collateral would depend in varying degrees on the following factors relating to the asset: Standardization, durability, marketability, and stability of value. Standardization refers to the worth and re-sale ability of asset, pledged as collateral, in the event of default. Durability relates to the ability of the asset to withstand wear and tear during its useful or economic life. The useful or economic life of an asset should be longer than term period of the debt. This is to ensure that the collateral will still be in useful condition and hence saleable even after the maturity of debt. Therefore, it can still be sold in the event that the borrower could not pay at maturity of the loan. Marketability refers to the depth of the market including secondary market for the collateral. Thus, assets that lend themselves to wide applications are better collaterals. Similarly, assets that have wide secondary or tertiary markets also represent better collaterals than those with little or no secondary market at all. 


Related Discussions:- Analysis of collaterals

Cash flow matching, Cash flow matching strategy is used to build a ...

Cash flow matching strategy is used to build a bond portfolio wherein the cash flows of the bond portfolio exactly match a stream of liabilities. The most s

Define assumption behind experience approach to forecasting, What is the pr...

What is the primary assumption behind the experience approach to forecasting? The experience approach to forecasting is relies on the assumption that things will happen a fixed

Account balance - inherent risk, Account balance - Inherent risk At a...

Account balance - Inherent risk At account balance / class of transaction level Balances susceptible to misstatement. History of errors. Complexity of transac

Types of equity securities , Types of equaty Securities Equity securiti...

Types of equaty Securities Equity securities, traditionally, are classified into two types when they are issued. They are: Common Stock, and Preferred Stock.     Common Stoc

State expectations theory of term structure of interest rate, State the exp...

State the expectations theory of the term structure of interest rates. Expectations theory: The expectations theory of the term structure of interest rates specifies that

Explin the triangular arbitrage, What is triangular arbitrage?  What is a c...

What is triangular arbitrage?  What is a condition that will give increase to a triangular arbitrage opportunity? Answer:  Triangular arbitrage is the method of trading out of th

Real Estate Finance, 1. Consider the following cash flows and reversion: T...

1. Consider the following cash flows and reversion: There is an $80,000 cash outflow at time zero. BTCFs for years 1-4, respectively, are $10,000, $20,000, $20,000, and $25,000.

Volatility risk, Expected volatility is a major factor that affects t...

Expected volatility is a major factor that affects the value of an option. Expected volatility of an option on bond is referred to as 'expected yield volatility'. The

Market beta, The management of Nelson plc wish to estimate their firm’s equ...

The management of Nelson plc wish to estimate their firm’s equity beta. Nelson has had a stock market quotation for only two months and the financial management feels that it would

Macro-economic analysis, Macro-Economic Analysis Measuring the Level o...

Macro-Economic Analysis Measuring the Level of Economic Activity Gross National Product (GNP) and the Gross Domestic Product (GDP) are the two most widely used aggregates

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd