Financially How would You Relate …..

Goldfinger, Beverly Hills Cop, Lethal Weapon 2, Die Hard, Heat, Mission Impossible, Panic Room , Steal and the TV series 24, The Flash and Monk.

BEARER BONDS

Sushant Gopalkrishna FK-1822

An unregistered, negotiable bond on which interest and principal are payable to the holder, regardless of whom it was originally issued to. The coupons are attached to the bond, and each coupon represents a single interest payment. The holder submits a coupon, usually semi-annually, to the issuer or paying agent to receive payment. Bearer bonds are being phased out in favor of registered bonds. They are also called coupon bond.

DEFINITION….

• Bearer bonds are bonds that are owned by whoever is holding them, rather than having registered owners like most other securities.

• This is useful for investors who wish to retain anonymity. Recovery of the value of a bearer bond in the event of its loss, theft, or destruction is usually impossible.

• Bearer bonds were most likely first used in the United States during the post-Civil War era to fund Reconstruction (1865–1885).

• Europe and the Americas followed this because if its utility

• In the United States, because of Tax Equity and Fiscal Responsibility Act of 1982, debt issued in bearer form has been discouraged. The interest on any such bonds issued after 1982 would be taxable to the issuer in the case of corporate bonds, and taxable to the holder in the case of municipal bonds.

• In the United States all the bearer bonds issued by the U.S. Treasury have matured. They no longer pay interest to the holders. As of May 2009, the approximate amount outstanding is Rs.100 million.

HISTORY…

• Bearer Bonds have historically been the financial instrument of choice for money launderers, tax evaders.

• Easily Negotiable

• Ease of Ownership Transfer and the characteristic anonymity

• Very often exploited to evade taxes or conceal business transactions.

WHY WOULD AN INVESTOR CHOOSE THIS UNUSUAL INSTRUMENT?

• Interest and Principal will be paid without question to anyone tendering a bond certificate.

• Creates great risk for the legitimate owner in case of theft or lost.

• Untraceable.

• Given the long life of some bearer bonds, the possibility that an issuer may not be around to make good on its promise to pay at maturity can increase over time, and pursuing one's right to payment in the courts would mean surrendering the anonymity of ownership that was probably the holder's intent in the first place.

RISK IN BEARER BONDS

• Most bearer bonds in circulation today were issued when interest rates were relatively high. As a result, over the years, many of them were called before their maturity dates in order to reduce the carrying costs to the issuers.

• There are U.S.-issued bearer bonds still in circulation because of their long lifespan - up to 50 years - but, according to an article that appeared in The New York Times on February 13, 2006, by 2013 most of these bonds will have become extinct.

FUTURE OF BEARER BONDS

• The New York Times also revealed that the Depository Trust Company (DTC), one of the world's largest securities depositories, has only a relative handful (compared to previous numbers) Bearer Bonds left.

• Compare that to 1991, when the company was responsible for handling 21 million bearer bonds, or 42 million coupons, a year; today the number of bonds in the DTC vault has fallen to below 700,000 coupons a year, about Rs.3.5 billion worth, not including interest.

• While the bearer bond has been around for a number of years, the concept is beginning to lose some of its appeal. More investors are demonstrating interest in registered bonds as their negotiable bonds of choice.

• Registered bonds are more stable and uniform in structure than the bearer bond and investors can manage to make a decent amount of interest from registered bonds.

CONCLUSION

YIELD

Yield

• Yield is a figure that shows the return you get on a bond. The simplest version of yield is calculated using the following formula: yield = coupon amount/price. When you buy a bond at par, yield is equal to the interest rate. When the price changes, so does the yield.

An example: If you buy a bond with a 10% coupon at its Rs.1,000 par value, the yield is 10% (Rs.100/Rs.1,000).

• But if the price goes down to Rs.800, then the yield goes up to 12.5%. This happens because you are getting the same guaranteed Rs.100 on an asset that is worth Rs.800 (Rs.100/Rs.800). Conversely, if the bond goes up in price to Rs.1,200, the yield shrinks to 8.33% (Rs.100/Rs.1,200).

WHAT IS YIELD….

Yield To Maturity matters are always more complicated in real life. When bond investors refer to yield, they are usually referring to yield to maturity (YTM). YTM is a more advanced yield calculation that shows the total return you will receive if you hold the bond to maturity. It equals all the interest payments you will receive (and assumes that you will reinvest the interest payment at the same rate as the current yield on the bond) plus any gain (if you purchased at a discount) or loss (if you purchased at a premium).

Current Yield = [(Coupon Rate ÷ Bond Price) x Par Value] + [(Par Value - Bond Price) ÷ YTM]

YIELD TO MATURITY

Apart from yield to maturity, an investor may need to know two other types of yields. These are:

Coupon yield: The annual interest rate that is fixed at the time of the issuance of a bond.

Current yield: The ratio of the annual interest payment to the bond's current price.

The relationship of yield to price can be summarized as follows:

When price goes up, yield goes down and vice versa. Technically, you'd say the bond's price and its yield are inversely related.

THE LINK BETWEEN PRICE AND YIELD

THANK YOU