Special bond structures, Financial Management

Assignment Help:

Special bond structures are the municipal securities bearing special security structures. They are of two types - insured bonds and pre-refunded bonds.

  • Insured Bonds: Insured bonds are the bonds secured by the issuer's revenue as well as insurance policies written by the commercial insurance companies. Insurance on a municipal bond is nothing but an agreement by the insurance company to pay the bondholder the amount due on a stated maturity if the issuer defaults on the issue. Once issued, the insurance company cannot cancel its contract for the entire life of the municipal bond.

  • Pre-refunded Municipal Bonds: Bonds originally issued either as revenue bonds or general obligation bonds and later pre-refunded by the issuers are called pre-refunded municipal bonds. Pre-refunding normally occurs when the original bonds are escrowed or collateralized by direct obligations guaranteed by the US government.

For this purpose, a trust is created and all the securities guaranteed by the US government are placed into it. In the trust, the securities are arranged in a manner that cash-flows from these securities match the issuer's obligations to pay. When these cash-flows match with the issuer's obligations to pay, then the pre-refunded bonds no longer are secured as the general obligations or revenue bonds. The reason is - these bonds are secured by the cash flows held in the escrow account. This matching of cash flows with the issuer's obligation renders these municipal bonds with less credit risk and makes them the safest municipal bonds.    


Related Discussions:- Special bond structures

Yield spread measures for floating-rate securities, In a floating rat...

In a floating rate security, the coupon rate changes periodically as per the reference rate. The yield to maturity of floating rate securities cannot be calculated as

Show the difference between revenues and costs, • Sales revenue line drawn ...

• Sales revenue line drawn and labelled correctly and accurately • Fixed cost line (at $1,020) labelled and drawn accurately and correctly • Total costs line (starting at $1,

Long-term debt, Long- T er m Debt Long-term debt is a deb...

Long- T er m Debt Long-term debt is a debt obligation that has a maturity from the date the obligation was incurred of more than one year. The debt obligation com

Define limit of theory of comparative advantage is realistic, What consider...

What considerations might limit the extent to which the theory of comparative advantage is realistic? Answer: The theory of relative advantage was initially advanced by the ninet

Compute the rate of return on investment, Suppose you are a euro-based inve...

Suppose you are a euro-based investor who simply sold Microsoft shares which you had bought six months ago. You had invested 10,000 euros to buy Microsoft shares for $120 each shar

Explain the implicit cost of capital, Explain the Implicit cost of capital ...

Explain the Implicit cost of capital Implicit cost of capital can be defined as the rate of return associated with the best investment opportunity for the firm and its Shareho

Illustrate miller-orr model recognises, Q. Illustrate Miller-Orr model reco...

Q. Illustrate Miller-Orr model recognises? The Miller-Orr model recognises which cash balance requirements are likely to fluctuate and that active management is required in r

Features of capital budgeting decisions, Features of Capital Budgeting Deci...

Features of Capital Budgeting Decisions 1.       Existence of potentially large anticipated profits. 2.       Involves a comparatively high degree of risk 3.       Exist

Capital structure theory, Capital structure theory: Use the following ...

Capital structure theory: Use the following information to answer the questions: Case I: Capital structure theory ( no tax ) Case II: Capital struct

Find NPV of 2 Projects, Woody Construction is considering a new 3-year expa...

Woody Construction is considering a new 3-year expansion project that requires an initial fixed asset investment of $3.186 million. The fixed asset will be depreciated straight-lin

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