Corporate Bonds
Chapters in this video
- 0:00 What a corporate bond is: semiannual coupons, $1,000 par, negotiability
- 1:33 The indenture: trust agreement, covenants, and trustee role
- 2:06 Investment-grade vs. junk: the BBB-/Baa3 line and what ratings miss
- 4:03 Convertible bonds and zero-coupon phantom income
- 5:42 Secured, unsecured, subordinated, and income bond priority
- 6:27 Sinking fund provision: the double-edged reinvestment risk trap
- 7:33 Liquidation priority ladder and why all debt beats all equity
- 8:42 Rapid-fire exam recap
What this video covers
- Why corporate bonds carry credit (default) risk and how their negotiability allows secondary-market sale before maturity
- What the indenture (also called the trust agreement or deed of trust) contains and why the trustee matters for bondholder protection
- The exact BBB-/Baa3 dividing line between investment-grade and high-yield (junk) bonds, plus what ratings measure and do not measure
- Why yield spreads widen during economic stress as investors flee credit risk for Treasury safety
- How convertible bonds trade lower coupons for equity upside through conversion into a fixed number of common shares
- Why zero-coupon bonds create phantom income taxed annually despite no cash payments, and why tax-deferred accounts solve the problem
- The liquidation priority ladder and the exam trap that all debt, even subordinated debentures, beats all equity, even senior preferred stock
Read the full lesson, free
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