BONDS 10.

Market Value of bonds is computed as follows:

Bonds – are a written promise made under seal to pay Present Value of Par at effective rate
Par x Factor (Single Payment) ₱xxx
a specific amount at a fixed or determinable future + Present Value of Annual Interest at
date, with interest payable at a regular rate. effective rate
Par x Interest Rate x Factor (Installment) xxx
MARKET VALUE ₱xxx
Other Feature of Bonds

1. They are long term liability of the issuing OTHER TERMS:

corporation. 1. Bond Trustee
2. They have a par value (₱1,000) 2. Authorized Bonds
3. Their issuance requires a contract between the 3. Issued Bonds
issuer and the bondholder (trust indenture). 4. Callable Bonds
4. They are sold thru the stock market if issuer were 5. Redeemable Bonds (With Redemption Privilege)
a listed corporation. 6. Convertible Bonds (With Conversion Privilege)
5. They mature at a single date, although some 7. Bond Premium
mature in installment. 8. Bond Discount
Single Date – term bonds 9. Bifurcation
Installment – serial bonds 10. Amortized Cost
6. Market Quotations: 11. Carrying Value
a. Stocks – peso per share 12. Market Value
b. Bonds – percentage of the par 13. Effective Rate

Ex. 104 means 104% of the par/ 14. Nominal / Stated Rate
15. Life / Term
7. Some bonds are secured or collateralized while
16. Remaining Life
some are unsecured.
17. Bonds Sinking Fund
Unsecured – debenture bonds
Secured 1. Mortgage Bonds
2. Collateral trust bonds
8. If issued by the government – Government Bonds
If issued by private corporation – Commercial
Bonds
9. May be issued at par, above par or below par.
Above Par – Premium
Below Par – Discount
Investments on Stocks vs Investment on Bonds
Stocks – are known as Equity Investments
Bonds – are known as Debt Investments
Bonds
 They are normally long - term. The shortest is
5 years unlike in promissory note that 5 years
is a long – term. ( the normal is 10 years and
above)
 Bonds are Instruments
 Long – term liability by the issuing
corporation.
As an investor, our investments are classified into two:
 Equity Investments Through Profit or Loss
 Equity Investments through
Comprehensive Income.
In Bonds, our investments will be classified into three:
 Equity Investments Through Profit or Loss
 Equity Investments through
Comprehensive Income.
 Financial Asset at Amortized cost/Carrying
Value.
*yung carrying value at amortized cost pareho lang. May araw
na pareho at may araw na hindi.
*pag first day ng transaction, pare pareho ang meaning ng
market value, fair value, carrying value at amortized cost. Pero
paglipas ng isang araw, magkakaiba na sila ng meaning.
Bonds bear the seal of the corporation, meaning to say,
pag nangutang ang corporation, hindi pwedeng hindi
bayaran dahil dala dala niya yung pangalan ng
corporation.
Trust indenture – contract of bond issuance
- the contract between the bond holders and the
issuing corporation.
Bond Trustee – the person being assigned in a
corporation to take care of the transactions related to
bonds.
*dahil pera yung hawak nung trustee, pwede niyang palaguin.
Pwede niyang i-invest sa ibang bagay na makakaearn ng income
para habang lumilipas yung panahon, dumadami yung pera nung
bond.
Sinking Funds – exclusively for the payment of the
bonds.
*nag-uumpisa palang mangutang ang corporation, nag-
aalkansiya na siya para pag nagmature at kapag dapat nang
bayaran, may pambayad siya. Ang pambabayad manggagaling
sa sinking funds.
Other Bonds Sinking Funds represent a cash segregated to
take care of payment for the issuance of bonds.
*kaya lang hindi biglang maraming fund. Kapag tinawag na
fund, naiipon.
*Halimbawa meron silang rule na every month magdadagdag
Other
sila sa fund kaya yung fund parami nang parami. Kaya kapag
dumating yung panahong na kailangan ng pambayad ng utang,
doon kukuha ng pambayad sa sinking fund.
They mature at one and a single date at the same time.
So if we have authorized bond of ₱10,000,000. Sabay
sabay magmamature yon.
There are bonds wherein we pay every year it is called
Serial Bonds.
Example:
Sa ₱10,000,000, yung ₱1,000,000 taon-taon
binabayaran kaya in ten years’ time, natapos na yung
utang.
Serial Bonds are payable in installment.
Term Bonds – payable at a single date.
Unsecured bonds or Debenture Bonds - bonds that
are unsecured meaning to say it has no
collateral.
Mortgage Bonds - If the collateral is a real state.
Collateral Trust Bonds – other bonds that is not a real
estate and other property is the collateral.
Government Bonds – if issued by the government.
Commercial Bonds – if issued by a private
individual/corporations.
Where do we buy the bonds?
 They are to be sold thru the stock market if the
Effective Rate – this is the rate that will be used to
equate the present value with the principal.
 Effective rate is equal to the borrower’s rate or the
prevailing rate or market rate.
 Nominal rate or stated rate is the rate written in the
face of the bonds certificate. It is the agreed interest
between the bond holders and the issuing
corporations.
Present Value and the Principal are different.
Principal – single payment
Interest – Installment
Installment Rate = (1- i)-n *if the interest are the
I uniform.

corporation issuing them are a listed Installment Rate = (1- i)-n *if the interest are the
corporation. are different.

 But if the corporation is not a listed *yung pag utang ng pera sa issuing corporation
nangangailangan ng consent.
corporation, the bonds can be bought thru over
the counter. Or if they have underwriter or sa It needs the consent of the majority of the
shareholders.
ahente pwede bumili ng bonds pero di siya
dadaan sa stock market.
*ang pag utang ng pera parang solar system
All bonds have Par Value or Principal

 Pag sinabing 94 ibig sabihin 94% of the

O O
Par. Kaya kung 1,000 yon, ang selling 11% 8%

price niya ay 940. (1,000 x 94%) 12%

 In stocks, kapag sinabing 104, ₱104 per O

share yun. Pero kapag bonds percent yun. OUR COMPANY
1000 1500

Market Value of bonds is computed as follows:

O O
10% 9%
Present Value of Par at effective rate
Par x Factor (Single Payment) ₱xxx
SHAREHOLDERS/INVESTORS
+ Present Value of Annual Interest at
effective rate
Par x Interest Rate x Factor (Installment) xxx
MARKET VALUE ₱xxx  Dahil tayo ang pinakamataas magbayad ng
interest, yung mga investors pipiliin yung mataas
 na interest kaya dadami yung gustong bumili ng - Nakatanggap siya ng mas mahal kaysa sa normal
bonds natin. na face value. Pero hindi siya nirerecognize na gain
 Yung pagbenta ng bonds, ang equivalent nun, pag kasi nagkakagastos siya sa kababayad ng interest
utang natin ng pera because bonds are a proof of kaya sa halip na ituring siyang gain, yung premium
indebtedness. ginagamit siyang pambalanse dun sa interest
 Dahil mataas tayo magbayad ng interest, yung mga expense na binabayad niya.
investors satin pupunta. Kaya mayaman na tayo. - Kaya yung premium nakakabawas ng interest
Kaya may karapatan tayong ibenta yung bonds expense.
natin mas mataas kaysa sa normal.
In the POV of the investors, what is premium?
Example: - it becomes a loss.
- Nagbayad tayo ng mahal, pero mas konti yung
Par 1000
Selling Price ( 1500) bumalik satin.
Share Premium 500
- hindi natin irerecord yung loss ng minsanan lang.
ginagamit natin siyang pambalanse doon sa
 If we are one of the corporation who pays a low interest income natin.
interest, magmumuka tayong palabras na walang - Kumita tayo ng interest pero nalugi naman tayo sa
nanonood. process ng pag utang kaya ang nangyari, yung
 Kaya gagawa tayo ng billing para maencourage premium nakabawas ng income natin.
yung iba na mag invest. - Kaya yung premium nakakabawas sa income ng
 So nag iisue tayo ng tinatawag na callable bonds, investor.
redeemable bonds, convertible bonds etc.
In the POV of the issuing corporation, what is
 Bukod doon, mumurahan natin yung pagbenta ng discount?
bonds. Kasi ayaw satin kasi mababa tayo
- There is a loss
magbayad ng interest. Kaya para maentice sila na - Kaya ang discount ay nakakadagdag sa expense
bumili, gagawin nating mura.
In the POV of the investors, what is discount?
- There is a gain
Example:
- Kumita na tayo ng interest at sa process ng pag
Selling Price 700 utang kasi binili natin yung investment ng mura
Par ( 1000) kaya dalawa yung income natin.
Discount 300
- Nakatipid na tayo at binabayaran pa tayo ng

In the POV of the issuing corporation, what is interest.

premium? - Kaya ang discount ay nakakadagdag ng income.
- It becomes a gain
In premium…

 Parehong nakakabawas
 Kay Issuer – nakakabawas ng expense
 Kay Investor – nakakabawas ng income.

In Discount…

 Parehong nakakadagdag
 Kay Issuer – nakakadagdag ng expense
 Kay Investor – nakakadagdag ng income

Kelan mas malaki ang income natin?

 Pag may discount

 Mas mataas ang effective income natin kapag
may discount.
 Kapag may discount, mas malaki ang effective
interest kaysa sa nominal interest.
 Kapag may premium, mas mataas ang nominal
interest kaysa sa effective interest.