Bond value

Similar financial terms

Plain vanilla bond
A typical ‘plain vanilla’ bond issued in the United States specifies (a) a fixed date (maturity or expiry date) when the amount borrowed (the principal or face value) is due, and (b) the contractual amount of interest which typically is paid every six months in the US and once a year on the European continent. A plain vanilla bond has a known cash flow pattern.

Bond
A bond is a debt instrument requiring the issuer (also called the debtor or borrower) to repay to the lender/investor the amount borrowed plus interest (coupons) over a specified period of time.

Bond indenture
A contract or agreement between the issuer and the bondholder, which sets forth all the obligations of the issuer.

Short-term bonds
Bonds with a maturity of between one and five years.

Medium-term or intermediate-term bonds
Bonds with a maturity of between five and twelve years.

Long-term bonds
Bonds with a maturity of more than 12 years.

Zero-coupon bonds
The holder of a zero-coupon bond realizes interest by buying the bond at a discount to its principal value. These bonds made their debut in the U.S. bond market in the early 1980s.

Deferred-coupon bonds
Bonds that let the issuer avoid using cash to make interest payments for a specified number of years. There are three types of deferred-coupon structures: (a) deferred-interest bonds, (b) step-up bonds and (c) payment-in-kind bonds.

Call feature on bonds
A call feature grants the issue the right to retire the debt, fully or partially, before the scheduled maturity date. Inclusion of a call feature benefits bond issuers by allowing them to replace an old bond issue with a lower-interest cost issue if interest rates in the market fall.

Put provision on bonds
A put provision grants the bondholder the right to sell the issue back to the issuer at par value on designated dates. Here the advantage to the investor is that if interest rates rise after the issue date, thereby reducing a bond’s price, the investor can force the issuer to redeem the bond at par value.

Convertible bond
An issue giving the bondholder the right to exchange the bond for a specified number of shares of common stock. This feature allows the bondholder to take advantage of favourable movements in the price of the issuer’s common stock.

Exchangeable bond
An issue giving the bondholder the right to exchange the issue for a specified number of common stock shares of a corporation different from the issuer of the bond.

Interest-rate risk on bonds
The price of a typical bond will change in the opposite direction from a change in interest rates. As interest rates rise, the price of a bond will fall; as interest rates fall, the price of a bond will rise. The actual degree of sensitivity of a bond’s price to changes in market interest rates depends on various characteristics of the issue maturity, coupon and special provisions.

Reinvestment risk on bonds
Usually, when the yield of a bond is calculated, you assume that the coupons received before maturity are reinvested. The additional income from such reinvestment is sometimes referred to as interest-on-interest which depends on the prevailing interest-rate levels at the time of reinvestment. Volatility in the reinvestment rate of a given strategy because of changes in market interest rates is called reinvestment risk. This risk is that the interest rate at which interim cash flows can be reinve ...

Call risk on bonds
Many bonds include a call feature that allows the issuer to redeem or “call” all or part of the issue before the maturity date. The issuer usually retains this right in order to have flexibility to refinance the bond in the future if the market interest rate drops below the coupon rate. This implies three risks from the investor: (a) The cash flow pattern becomes uncertain, (b) The investor becomes exposed to reinvestment risk because the issuer will call the bond when interest rates drop, and ( ...

Default risk on bonds
Issuers that potentially run into cash flow problems, simultaneously attaches default risk to their bonds if there is uncertainty whether they can afford to pay coupons and principals. Bonds with default risk trade in the market at a price that is lower than comparable U.S. Treasury securities, which are considered free of default risk. Default risk is gauged by quality ratings assigned by recognised rating companies such as Moody’s Investor Service, Standard & Poor’s Corporation, Morningstar an ...

Junk bonds
Bonds that trade below investment grade set by recognised rating companies such as Moody’s Investor Service (Baa3), Standard & Poor’s Corporation (BBB), Morningstar and Fitch IBCA.

Inflation risk on bonds
If investors purchase a bond on which they can realize a coupon rate of 5% but the rate of inflation is 6%, the purchasing power of the cash flow actually has declined. Inflation risk arises because of the variation in the value of cash flows from a security due to inflation, as measured in terms of purchasing power.

Exchange-rate risk on bonds
A non-domestic-currency nominated bond has unknown domestic currency cash flows. The domestic currency cash flows are dependent on the exchange rate at the time the payments are received. For example, suppose that a German investor purchases a bond whose payments are in British pounds (GBP). If pounds depreciate relative to euros (EUR), fewer euros will be received and vice versa. This risk is also referred to currency risk.

Liquidity risk on bonds
The primary measure of liquidity is the size of the bid-ask spread. Liquidity risk depends on the ease with which an issue can be sold at or near its value. It follows that the wider the dealer spread, the more liquidity risk.

Eurobond
An international bond sold primarily in countries other than the country in whose currency the issue is denominated

Brady bonds
Brady bonds are issued by emerging countries under a debt-reduction plan named after former U.S. Secretary of the Treasury Nicholas Brady. Brady bonds were set up in association with the IMF and World Bank to sponsor the restructuring of outstanding sovereign loans and interest arrears into liquid debt instruments.

Treasury Bond
A long-term debt instrument issued by the government to finance its budget. Treasury Bond coupons are usually paid semi-annually in the US and annually in the UK.

Conventional bonds
The conventional bonds form the largest part of the UK gilt market. 73% of bonds oustanding are in this form. COnventional bonds have a fixed coupon and a bullet (i.e. a fixed) maturity. Current coupons range from 2% to 13.5%. At the moment (2004), the longest outstanding maturity is 2036.

Irredeemable bonds
Bonds with a fixed maturity but not subject to prior redemption; bonds that cannot be called for redemption by the issuer (payer or obligor) before maturity. They should not be confused with perpetual bonds or intermediate bonds. UK Irredeemable (undated) bonds have no final maturity date. They are callable by the government at any time within 3 months. As their coupons range between 2.5% and 4% they are unlikely to be called. War loan, issued by the UK government during the First World War ...

Yankee bonds
Yankee bonds are issued by foreign governments and corporations, are generally dollar denominated, trade in the U.S., and must register with the Security and Exchange Commission. Issuers in the Yankee bond market are predominately highly-rated sovereign, or sovereign guaranteed issuers, although foreign corporations and financial institutions have increased issuance of Yankee bonds over the last decade.

Issuance in the Yankee bond market is dependent on U.S. interest rates, and the valu ...

Matador bonds
Foreign bonds issued in Spain.

Rembrandt bonds
Foreign bonds issued in Netherlands.

Samurai bonds
Foreign bonds issued in Japan.

Bulldog bonds
Foreign bonds issued in the United Kingdom.

Shogun bonds
Shogun bonds consist of foreign-currency bonds issued in Tokyo in currencies other that Japanese yen (JPY).

Yankee ECU bonds
Yankee ECU bonds refers to foreign-currency bonds issued in New York or Chicago in currencies other that US dollar.

Bond ratio
A ratio showing the portion of total capitalization represented by bonds. To compute the ratio, dived the dollar value of bonds by total capitalization; the result is expressed as a percentage

Z bond
Also known as an accrual bond or accretion bond; a bond on which interest accretes interest but is not paid currently to the i nvestor but rather is accrued, with accrual added to the principal balance of the Z and becoming payable upon satisfaction of all prior bond classes.

Accrual bond
A bond on which interest accrues, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

Variable rated demand bond
Variable rated demand bond (VRDB) is a floating rate bond that can be sold back periodically to the issuer.

U.S. Treasury bond
U.S. government debt with a maturity of more than 10 years.

Term bonds
Often referred to as bullet-maturity bonds or simply bullet bonds, bonds whose principal is payable at maturity.

Sushi bond
A eurobond issued by a Japanese corporation.

Subordinated debenture bond
An unsecured bond that ranks after secured debt, after debenture bonds, and often after some general creditors in its claim on assets and earnings. Related: Debenture bond, mortgage bond, collateral trust bonds.

Stripped bond
Bond that can be subdivided into a series of zero-coupon bonds.

Stratified sampling bond indexing
A method of bond indexing that divides the index into cells, each cell representing a different characteristic, and that buys bonds to match those characteristics.

Step-up bond
A bond that pays a lower coupon rate for an initial period which then increases to a higher coupon rate.

Speculative grade bond
Bond rated Ba or lower by Moody's, or BB or lower by S&P, or an unrated bond.

Single-payment bond
A bond that will make only one payment of principal and interest.

Short bonds
Bonds with short current maturities.

Series bond
Bond that may be issued in several series under the same indenture.

Serial bonds
Corporate bonds arranged so that specified principal amounts become due on specified dates.

Revenue bond
A bond issued by a municipality to finance either a project or an enterprise where the issuer pledges to the bondholders the revenues generated by the operating projects financed, for instance, hospital revenue bonds and sewer revenue bonds.

Registered bond
A bond whose issuer records ownership and interest payments. Differs from a bearer bond which is traded without record of ownership and whose possession is the only evidence of ownership.

Refunded bond
Also called a prerefunded bond, one that originally may have been issued as a general obligation or revenue bond but that is now secured by an "escrow fund" consisting entirely of direct U.S. government obligations that are sufficient for paying the bondholders.

Put bond
A bond that the holder may choose either to exchange for par value at some date or to extend for a given number of years.

Pure-discount bond
A bond that will make only one payment of principal and interest. Also called a zero-coupon bond or a single-payment bond.

Premium bond
A bond that is selling for more than its par value.

Positive covenant (of a bond)
A bond covenant that specifies certain actions the firm must take. Also called an affirmative covenant.

Payment-In-Kind (PIK) bond
A bond that gives the issuer an option (during an initial period) either to make coupon payments in cash or in the form of additional bonds.

Municipal bond
State or local governments offer muni bonds or municipals, as they are called, to pay for special projects such as highways or sewers. The interest that investors receive is exempt from some income taxes.

Mortgage bond
A bond in which the issuer has granted the bondholders a lien against the pledged assets. Collateral trust bonds

Mismatch bond
Floating rate note whose interest rate is reset at more frequent intervals than the rollover period (e.g. a note whose payments are set quarterly on the basis of the one-year interest rate).

Low-coupon bond refunding
Refunding of a low coupon bond with a new, higher coupon bond.

Long bonds
Bonds with a long current maturity. The "long bond" is the 30-year U.S. government bond.

Limited-tax general obligation bond
A general obligation bond that is limited as to revenue sources.

Level-coupon bond
Bond with a stream of coupon payments that are the same throughout the life of the bond.

Bearer bond
Bonds that are not registered on the books of the issuer. Such bonds are held in physical form by the owner, who receives interest payments by physically detaching coupons from the bond certificate and delivering them agent.to the paying

Bond agreement
A contract for privately placed debt.

Bond covenant
A contractual provision in a bond indenture. A positive covenant requires certain actions, and a negative covenant limits certain actions.

Bond equivalent yield
Bond yield calculated on an annual percentage rate method. Differs from annual effective yield.

Bond indexing
Designing a portfolio so that its performance will match the performance of some bond index.

Bond points
A conventional unit of measure for bond prices set at $10 and equivalent to 1% of the $100 face value of the bond. A price of 80 means that the bond is selling at 80% of its face, or par value.

Bond-equivalent basis
The method used for computing the bond-equivalent yield.

Bond-equivalent yield
The annualized yield to maturity computed by doubling the semiannual yield.

BONDPAR
A system that monitors and evaluates the performance of a fixed-income portfolio , as well as the individual securities held in the portfolio. BONDPAR decomposes the return into those elements beyond the manager's control--such as the interest rate environment and client-imposed duration policy constraints--and those that the management process contributes to, such as interest rate management, sector/quality allocations, and individual bond selection.

Bull-bear bond
Bond whose principal repayment is linked to the price of another security. The bonds are issued in two tranches: in the first tranche repayment increases with the price of the other security, and in the second tranche repayment decreases with the price of the other security.

Collateral trust bonds
A bond in which the issuer (often a holding company) grants investors a lien on stocks, notes, bonds, or other financial asset as security.

Completion bonding
Insurance that a construction contract will be successfully completed.

Conflict between bondholders and stockholders
These two groups may have interests in a corporation that conflict. Sources of conflict include dividends, distortion of investment, and underinvestment. Protective covenants work to resolve these conflicts.

Convertible bonds
Bonds that can be converted into common stock at the option of the holder.

Convertible eurobond
A eurobond that can be converted into another asset, often through exercise of attached warrants.

Corporate bonds
Debt obligations issued by corporations.

Cushion bonds
High-coupon bonds that sell at only at a moderate premium because they are callable at a price below that at which a comparable non-callable bond would sell. Cushion bonds offer considerable downside protection in a falling market.

Blanket fidelity bond
SEC-required insurance coverage that brokerage firms are required to have in order to cover fraudulent trading by employees.

General Obligation Bonds
Securities issued by municipalities. The source of revenue to pay the interest and principal is taxes. These securities are also known as full faith and credit issues because they depend on the municipality's capacity to tax. These issues are often considered to be more stable than Revenue Bonds.

Strip Bonds
The capital portion of a bond from which the coupons have been stripped. The holder of the strip bond is entitled to its par value at maturity, but not the annual interest payments.

Principal value
The amount that the issuer of a bond agrees to repay the bondholder at the maturity date. The principal is also referred to redemption value, maturity value, par value or face value.

Back-end value
The amount paid to remaining shareholders in the second stage of a two-tier or partial tender offer.

Going-concern value
The value of a company as a whole over and above the sum of the values of each of its parts; the value of organization learning and reputation.

Terminal value
The value at maturity.

Book value per share
The intrinsic value of a company's stock. BVPS is calculated by dividing tangible capital dollar value by the number of outstanding shares of common stock.

Face value
Alternative name for par value.

Adjusted present value (APV)
The net present value analysis of an asset if financed solely by equity (present value of un-levered cash flows), plus the present value of any financing decisions (levered cash flows). In other words, the various tax shields provided by the deductibility of interest and the benefits of other investment tax credits are calculated separately. This analysis is often used for highly leveraged transactions such as a leverage buy-out.

Value manager
A manager who seeks to buy stocks that are at a discount to their "fair value" and sell them at or in excess of that value. Often a value stock is one with a low price to book value ratio.

Value dating
Refers to when value or credit is given for funds transferred between banks.

Value date
In the market for eurodollar deposits and foreign exchange, value date refers to the delivery date of funds traded. Normally it is on spot transactions two days after a transaction is agreed upon and the future date in the case of a forward foreign exchange trade.

Value additivity principal
Prevails when the value of a whole group of assets exactly equals the sum of the values of the individual assets that make up the group of assets. Stated differently, the principle that the net present value of a set of independent projects is just the sum of the net present values of the individual projects.

Value-at-Risk
A value-at-risk (VAR) model is a procedure for estimating the probability of portfolio losses exceeding some specified proportion based on a statistical analysis of historical market price trends, correlations, and volatilities.

Value-added tax
Value-added tax (VAT) is a method of indirect taxation whereby a tax is levied at each stage of production on the value added at that specific stage.

Utility value
The welfare a given investor assigns to an investment with a particular return and risk.

Time value of money
The idea that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received.

Time value of an option
The portion of an option's premium that is based on the amount of time remaining until the expiration date of the option contract, and that the underlying components that determine the value of the option may change during that time. Time value is generally equal to the difference between the premium and the intrinsic value.

Straight value
Also called investment value, the value of a convertible security without the con-version option.

Standardized value
Also called the normal deviate, the distance of one data point from the mean, divided by the standard deviation of the distribution.

Salvage value
Scrap value of plant and equipment.

Residual value
Usually refers to the value of a lessor's property at the time the lease expires.

Replacement value
Current cost of replacing the firm's assets.

Relative value
The attractiveness measured in terms of risk, liquidity, and return of one instrument relative to another, or for a given instrument, of one maturity relative to another.

Price value of a basis point (PVBP)
Also called the dollar value of a basis point, a measure of the change in the price of the bond if the required yield changes by one basis point.

Present value of growth opportunities (PVGO)
The net present value (NPV) of investments the firm is expected to make in the future.

Present value factor
Factor used to calculate an estimate of the present value of an amount to be received in a future period.

Present value
The amount of cash today that is equivalent in value to a payment, or to a stream of payments, to be received in the future.

Par value
Also called the maturity value or face value, the amount that the issuer agrees to pay at the maturity date.

Original face value
The principal amount of the mortgage as of its issue date.

Net salvage value
The after-tax net cash flow for terminating the project.

Net present value rule
An investment is worth making if it has a positive NPV. Projects with negative NPVs should be rejected.

Net present value of future investments
The present value of the total sum of NPVs expected to result from all of the firm's future investments.

Net present value of growth opportunities
A model valuing a firm in which net present value of new investment opportunities is explicitly examined.

Net present value (NPV)
The present value of the expected future cash flows minus the cost.

Net book value
The current book value of an asset or liability; that is, its original book value net of any accounting adjustments such as depreciation.

Net asset value (NAV)
The value of a fund's investments. For a mutual fund, the net asset value per share usually represents the fund's market price, subject to a possible sales or redemption charge. For a closed end fund, the market price may vary significantly from the net asset value.

Net adjusted present value
The adjusted present value minus the initial cost of an investment.

Market value-weighted index
An index of a group of securities computed by calculating a weighted average of the returns on each security in the index, with the weights proportional to outstanding market value.

Market value ratios
Ratios that relate the market price of the firm's common stock to selected financial statement items.

Market value
(a) The price at which a security is trading and could presumably be purchased or sold. (b) The value investors believe a firm is worth; calculated by multiplying the number of shares outstanding by the current market price of a firm's shares.

Loan value
The amount a policyholder may borrow against a whole life insurance policy at the interest rate specified in the policy.

Liquidation value
Net amount that could be realized by selling the assets of a firm after paying the debt.

Book value
A company's book value is its total assets minus intangible assets and liabilities, such as debt. A company's book value might be more or less than its market value.

Cash-surrender value
An amount the insurance company will pay if the policyholder ends a whole life insurance policy.

Conversion value
Also called parity value, the value of a convertible security if it is converted immediately.

Embedded value
A methodology that reflects future shareholder profits in the life insurance business. Embedded value equals the free surplus plus the value of inforce business. Embedded value is hard to compare with different companies since each company determines its own input parameters, for example the level of target surplus.

Salvage Value
Is the amount remaining after a depreciated useful life. It refers to the residual or recoverable value of a depreciated asset. It should be noted that the gross salvage value may be adjusted by a removal or disposal cost. This adjustment would lower the gross salvage value.

Extrinsic Value
The time value component of an option premium.