Covered Bonds
February 12, 2025
If certain high profile fund managers and bond investors are to be believed, then the bond market has just slipped into a bear market. They are not talking about the usual tightening of the Fed’s interest rates. Interest rates have risen several times over the past few years. However, every time they return to normal. […]
When the management of companies is encouraged to change their paradigm from traditional finance to strategic finance, they notice a lot of changes. One of the most prominent changes that are observed is with regards to the concept of wealth maximization. There are many managers who have the opinion that wealth management is a fad […]
Roadshows are an important part of the investment banking process. This is because this is the stage where all the stakeholders i.e., the company issuing shares, the investment bankers, as well as potential investors, are all present at the same place. Roadshows are generally undertaken by private companies that are looking to list on a […]
In the past few articles, we have studied about the various models that are available to help us predict the value of a firm based on the dividends that it provides. However, all these models had one flaw. They expected that the dividends of the firm will follow some set pattern. For instance, the assumptions […]
Liquidity management can be a big problem for several companies. This is particularly true if the company has a large number of subsidiaries that are scattered in different places around the world. Companies that grow via the mergers and acquisitions route tend to face this problem more than other companies. This is because they often […]
Zero-coupon bonds are those bonds that are sold at a deep discount to their face value. This means that these bonds do not receive any periodic interest. Instead, the investors have to invest a lump sum amount at the beginning of their investment and get paid a higher lumpsum amount at the end of their investment. The absence of regular periodic payments is what makes zero-coupon bonds different as compared to other types of bonds.
Zero-coupon bonds are commonly issued by governments. In this article, we will have a closer look at the pros and cons of zero-coupon bonds from an investor’s point of view:
There are many zero-coupon bonds that are already in existence. Also, each year, many new zero-coupon bonds are issued. Despite there being so many zero-coupon bonds, the issues get sold out relatively easily. These bonds are so popular because they have certain advantages. Some of the advantages of these bonds have been mentioned below:
The pros of zero-coupon bonds are quite well known and often very well-publicized. However, there are some significant cons related to zero-coupon bonds as well. Some of them have been listed below:
The bottom line is that zero-coupon bonds are high-risk financial instruments. The risk reduction of these bonds is done by obtaining a higher yield and also ensuring that money is lent out only to government agencies.
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