1, profit and cash flow
2. Liquidity of assets
Step 3 borrow space
4. Guarantee and mortgage.
Corporate bonds refer to loan certificates issued by joint-stock companies for additional capital within a certain period of time (such as 10 or 20 years). For the holder, it is only a voucher to provide loans to the company, reflecting only an ordinary creditor-debtor relationship.
Although the holder has no right to participate in the operation and management activities of the joint-stock company, he can charge the company fixed interest at par value every year, and the order of collecting interest should take precedence over shareholders' dividends. When the joint-stock company goes bankrupt, he can also get back the principal first. Corporate bonds have a long term, generally more than 10 years. Once the bond expires, the joint-stock company must repay the principal and redeem the bond.
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What are the main characteristics of corporate bonds?
Greater risk:
The repayment source of bonds is the company's operating profit, but there is great uncertainty in the future operation of any company, so corporate bondholders bear the risk of losing interest or even principal.
Higher output:
The principle of direct proportion to risk requires that corporate bonds with higher risks should provide bondholders with higher investment returns.
Options:
Issuers and holders can give each other certain options.
Management right:
It embodies the creditor's rights relationship, and has no right to operate and manage the company, but it can have the right to claim interest and compensation first and distribute the remaining assets before shareholders.
What are the types of risks?
1. Interest rate risk. Interest rate is one of the important factors affecting bond prices. When interest rates rise and bond prices fall, there is risk. The longer the remaining maturity of bonds, the greater the interest rate risk.
2. Liquidity risk, bonds with poor liquidity make it impossible for investors to sell bonds at reasonable prices in a short time, thus suffering reduced losses or losing new investment opportunities.
3. Credit risk refers to the losses caused to bond investors by the failure of bond issuing companies to pay bond interest or repay principal on time.
4. Reinvestment risk. Buying short-term bonds instead of long-term bonds will have the risk of reinvestment. For example, the interest rate of long-term bonds is 14%, and the interest rate of short-term bonds is 13%. To reduce interest rate risk, buy short-term bonds. However, if the interest rate falls to 65,438+00% when the short-term bonds recover cash at maturity, it is not easy to find investment opportunities higher than 65,438+00%. It is better to invest in current long-term bonds and still get a return of 14%. In the final analysis, reinvestment risk is still an interest rate risk problem.
5. Recoverable risk, specifically to bonds with recoverable clauses, because it often has the possibility of compulsory recovery, and this possibility is often that when the market interest rate drops and investors charge the actual increased interest according to the nominal interest rate of bonds, a good cake often has the possibility of recovery, and our investors' expected income will suffer losses, which is called recovery risk.
6. Inflation risk refers to the risk that the purchasing power of money will decrease due to inflation. During the period of inflation, the investor's real interest rate should be coupon rate minus the inflation rate. If the bond interest rate is 10%, the inflation rate is 8%, and the real rate of return is only 2%, the purchasing power risk is the most common risk in bond investment.