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An issue with a put provision included in the agreement grants the bondholder the right to sell bonds back to the issuer at a pre-specified rate and date. The specified rate is known as put price. Normally the put price is equal or close to the par value of the bond. However, in zero coupon bonds put price is less than the par value. When market interest rate rises above the coupon rate, then the bondholder uses his right under the put provision and forces the issuer to redeem the bond at the put price. He can then invest the proceeds form the bonds in higher interest rate instruments.
Securitization -Source of financing whereby an entity's ASSETS (characteristically mortgage loans, lease obligations or other kinds of RECEIVABLES) are placed in a special purpose
Illustration Vishal Mehta & Co., Mumbai issued 7%, 5-year bond on 31st December 2006. The par value of a bond is Rs. 100. This bond pays interest annually and
Monte-Carlo Simulation Let us, for a shortwhile, leave the illustration for determining the price and consider a simpler illustration for understanding the Monte-Carlo method
Cost of Preference capital (K ) The fixed rate of dividend payable to the Preference share holders is the cost of Preference capital. Exactly, the cost of Preference capital
Outsourcing Outsourcing is referring to purchase of parts from outside suppliers. Outsourcing is the external acquisition of services or components used in the production of go
What is a callable bond? What is a putable bond? How do each of these features affect their respective market interest rates? A callable bond may be retired untimely at the dis
How has the merger activity in the past decade affected the concentration of assets in the banking industry? A: Over the last decade, some commercial banks declined by twenty-o
Your firm will produce widgets for the next 10 years (starting at t=1). Annual revenue from selling widgets is $20,000. Production requires an initial outlay (at t=0) for machin
How do mergers affect consumers? A: The impacts mergers have on consumers vary widely. There may be a few inconvenience and anxiety when a customer's bank or branch is obtained
Determine the Objectives of the Firm Objectives of the Firm - Profit Maximisation and Wealth Maximisation To put it simply, we may say that goal of any business is to max
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