Investors have a wide variety of possible bonds to add to their portfolios. To view a sample of what is currently available go to the following website; com/fi/FISearchIndividualBonds.do”>http://fixedincome.fidelity.com/fi/FISearchIndividualBonds.do (Note: Fidelity requires you to register. There is no fee, just an additional step to perform to get to the info! You may also use a different website if you prefer.)
Now look under “Individual Bonds”, then “Corporate” and click on “Investment Grade (Secondary).” Fill in the data required in that section. In most fields, simply click “All” to view a large number of bonds (you will definitely want to limit at least one of the selections – the website allows 3000 bonds at a time, and you may want to narrow it further – 1000 or so is manageable). At the bottom, click “Table” and then “See CUSIPs.” (Note: a CUSIP is a number that identifies each individual security.) Take a minute and scroll through these individual bonds and then answer the following questions.
1. What is the longest maturity date in this group of bonds?
2. What is the highest coupon rate bond in this group?
3. What is the highest yield bond in this group? Explain why this bond may have a high yield.
A bond’s yield depends on several factors; one of those factors is risk. So, how do you assess a bond’s risk? For bonds, it is quite simple. Prior to a bond being issued, external rating agencies assign a credit rating that helps the investment banker “price” the issue, or set the coupon rate. Coupon bonds are typically “priced” to sell at par value (or face value, usually $1000) at issuance. However, over time, the market rate of interest may change, or the risk of the company issuing the bond may change. When either of those factors change, the price of the bond will change and therefore change the yield to maturity of that bond for any investor buying the bond on the secondary market.
Go to the following site and look at bond ratings.
http://www.municipalbonds.com/education/read/67/understanding-bond-ratings/
4. What is Standard & Poor’s highest bond rating and how does it impact coupon rates and the bond’s selling price?
5. What would happen to the price of that bond if market rates of interest increased over the next two years?
Length – maximum 200-250 words
0 comments