Bond (Lecture Notes)

Course : Managerial Finance Lecture : Marc Credit Hours : 3 Credits Semester Sessions : 3 Semester, 2021/2022 Session Prepared By : Kenzo LECTURE NOTES BOND Erni Masdupi and Rahmiati (2014 : 28) say that bonds is a long-term debt certificate which states that publisher/issuer (borrower) is willing to pay a certain amount of house (interest) and repayment (principal) to bond investors. According to Agus (1996), Bonds are debt securities issued by a company a certain amount and will mature at a certain time and will provide large income of certain interest. The maturity of this bond, generally 10 to 30 years, but there are also bonds with a maturity date 7 to 10 years. These bonds are considered a long-term source of funds and are of a long-term nature the same as long-term debt. The difference is which company requires funds (the issuer) directly sells the bonds to investors, parties who experience surplus funds. Meanwhile, credit from banks, comes from public funds collected by banks and then sold to companies (which require funds) in the form of credit thus, of course the interest paid by the company to bond investors/holders bonds will be lower than the interest paid to the bank, in the sense of the word, by issuing bonds a company can earn funds are cheaper and bond holders/investors will too get higher interest payments from compared issuers with interest payments by the bank. This review can explained via the following image. The following is an image of the Reason for Publishing Bonds sourced from Erni Masdupi and Rahmiati (2014: 28) According to Erni Masdupi and Rahmiati (2014: 29) this image why companies issue bonds. Banks are institutions intermediary between parties with excess funds (investors/saver) and other parties that requires funds (company). The bank will pay interest on the saver (13%), then the bank sells these funds to the company in the form of long-term debt and the company has to pay interest to the bank by 20%. Thus, as an intermediary, the bank gets income of 7% from the difference in interest rates on savings and credit interest rate. If funding needs are met with issuing bonds then the issuing company can obtain funds by paying interest to the saver of 17%. Thus, secondly Both the saver and the issuing company benefit more compared to using bank services as intermediaries. Bond issuer these can be divided above 1. Government (treasury bonds)-SUN 2. Companies (corporate bonds) 3. Regional Government (municipal bonds) 4. Foreign companies/governments (foreign bonds). (Erni Masdupi and Rahmiati, 2014 : 29) The characteristics of bonds are that bonds will include nominal value/payment value (face value/part value); the time period will be repaid (due date); interest/coupon paid (coupon interest rate) and interest payment date. Bond interest can be distributed annually (annually bond) can also be paid twice a year (semi annual bond). How many times in one year is the interest paid? Sometimes bonds also includes a call provision, namely a clause that states that bonds can be collected by the issuer before the bonds mature a certain price is called the call price. Usually the call price is always higher from its nominal value. Apart from that, bonds also have a singking fund provision which is a clause that states that the bond issuer must set aside funds to pay off the bonds so that At maturity the bonds can be repaid. (Erni Masdupi and Rahmiati, 2014 : 29) Bonds can be divided into several types, namely: 1. Mortgage bond, is a bond that is guaranteed by a group certain assets. The company can reissue this type of bond before the first bond is paid off, which is called a mortgage bond junior/second mortgage. 2. Debenture bonds are bonds without collateral. Companies can reissue this type of bond before the first bond repaid, which is called a subordinate debenture bond. 3. Income bonds are bonds that pay interest. 4. Zero coupon bonds are bonds that do not pay interest usually sold at a discount to make the bonds attractive to consumers investor. 5. Callable bonds. This type of bond can be repaid before maturity. 6. Convertible bonds are bonds that can be exchanged for share. Sometimes there are bonds that are accompanied by a warrant (right to buy a number of shares in the future at a given price specified). 7. Euro bonds: bonds from foreign companies. 8. Junk bonds (cheap bonds) are bonds of low quality. (Erni Masdupi and Rahmiati, 2014: 30) Bondholders have the same status as creditors, if it is a company issuer goes bankrupt, bond holders have the right to repayment takes priority. For investors, investing in bonds is safer Due to the issuing company's profit or loss, interest must still be paid to bondholders. However, for bond issuer companies, this is more The risk is high because this bond is included in the fixed income group securities, fixed income securities. (Erni Masdupi and Rahmiati, 2014 : 30