Capital budgeting decision

Capital budgeting or investment decision is of considerable importance to the firm. Its value by influencing its growth profitability and risk.
The investment decisions of a firm are generally known as the capital budgeting or capital expenditure decision.

A capital budgeting decision defined as the firm’s decision to invest its current funds in the long-term assets. Sale of a division or business(divestment) is also as an investment decision.

Decision like the change in the methods of sales distribution. An advertisement campaign or research and development programme has long-term implication for the firm’s expenditure and benefit. They should evaluated as investment decisions.

Feature of investment decision.
1) The exchange of current funds.
2) The funds are invested in long-term assets
3) The future benefit will occure to the firm over a series of a year.

             Types of investment decision

There are many ways to classify investment
1)Expansion and diversification: -A company may add capacity to its existing product lines to expand an existing operation. A firm may expand its activities in a new business requires investment in new products. A new kind of production activity within firm.

Sometimes a company acquires existing firms to expand its business. The investment in the expectation of additional revenue. Investment in existing or new products may also be called revenue expansion investment.

2)Replacement and modernization:-The main objective of modernisation and replacement is to improve of operating efficiency and reduce cost. Cost savings will reflect on the increased profits, but the firm’s revenue may remain unchanged.

The firm must decide to replace those assets with new assets that operate more economically. If a cement company changes from semi-automatic drying equipment.Replacement decision help to introduce more efficient and economical assets. It also called cost-reduction investments.

3)Mutually exclusive investment:-Mutually exclusive investment serve the same purpose and compete with each other. If one investment is undertaken, others will have to exclude. A Company may, for example, either use a more labour-intensive, semi-automatic machine, for production. Choosing the semi-automatic machine precludes the acceptance of the highly automatic machine.

4)Independent investments:-Independent investment serve a different purpose and do not compare with each other. For example, a heavy engineering company may be considering expansion of its plant capacity Company wants to manufacture additional excavators.  Addition of new production facilities to manufacture a new product-light commercial vehicles.

5) Contingent investment:-Contingent investment are dependent projects the choice of one investment undertaking one or more other investment.If a company decide to build a factory in a remote, backward area. It may have to invest in houses, roads, hospitals, school etc. The building of the factory also requires investment in facilities for employees. The total expenditure treated as one single investment.

Important of Investment decisions

1)Growth:-The effects of investment decisions extend into the future and have to endure for a longer period. The consequences of the current operating expenditure. A firm’s decision to invest in long-term assets has a decisive influence on the rate and direction of its growth.
                         A wrong decision can prove disastrous for the continued survival of the firm unwanted or unprofitable expansion of assets. It will result in heavy operating costs to the firm.

2)Risk:-A long-term commitment of funds may also change the risk complexity of the firm.If the adoption of an investment increases average gain but causes frequent fluctuation in its earnings.

3)Funding:-Investment decisions generally involve a large amount of funds. Its make it imperative for the firm to plan its investment programmes very carefully . It makes an advance arrangment for procuring finances internally or externally.

4)Irreversibility:-It is difficult to find a market for such capital items once they have been acquired. The firm will incur heavy losses if such assets are scrapped.

5)Complexity:-Investment decisions are among the firm’s most difficult decisions. They are an assessment of future events which are difficult to predict. It is a really complex problem to correctly estimate the future cash flows of an investment. Economic, political, social and technological forces cause the uncertainity in cash flow estimation.

Real estate valuation



In real estate valuation. The concept of market value or actual worth must be interpreted differently from its meaning in stocks or bonds.

The difference arises for a number of reasons.
1)Each property is unique.
2)Term and conditions of sale may vary.
3)Market information is imperfect.
4)Properties may need substantial time for a market exposure time that may not be available to any given seller.
5)Buyers, too, sometimes need to act quickly.

By all this factor no one can say the true value of a property. It results properties sell for prices significantly above or below their estimated market value.

Estimating market value

In real estate, estimating the current market value of a piece of property is done through a process known as real estate appraisal. Using certain techniques, an appraiser will set the value on a piece of property. Using three complex techniques and then correlating results to come up with one best estimate.

Three approaches to real estate market value are.
1)The cost approach
2)The comparative sales approach
3)The income approach

The procedure for estimating market value.

1)The cost approach -In the cost approach investor should not pay more for a property that .it would cost to rebuild it today’s prices for land, labor, and construction materials. This approach to estimating value work well for a new building. Older properties, however, often suffer from wear and tear and outdated materials or design, making the cost approach more difficult to apply.
To value these older properties one would have to subtract some amount for physical and functional depreciation from the replacement cost estimates.

2)The comparative sales approach-This approach uses as the basic input variable the sales prices of properties that are similar to a subject property. This method based on that idea value of all given property is about the same as the prices for which other property recently sold.
If the investor can find at least one sold property slightly better than the one he is looking at, and one slightly worse their recent sales prices can serve to bracket an estimated market value for a subject property.

3)The Income approach -The most popular income approach is called direct capitalization.

Annual net operating income(NOI) is calculated by subtracting vacancy and collection losses and property operating expenses, including property insurance and property taxes from an income property’s gross potential rental income.

As estimated capitalization rate which technically means the rate used to convert an income stream to a present value. Obtained by looking at recent market sales figures and seeing what rate of return investors currently require.

Using an expert
Real estate valuation is a complex and technical procedure. It requires reliable information about the features of comparable properties, their selling, and applicable terms of financing. As a result, rather than relying exclusively on their own judgment.As a form of insurance against overpaying the use of an expert can be well worth the cost.





Preference share

 A preference share is a hybrid security, It combines some of the characteristics of debt and some of the equity. It represents a position of the ownership of the capital stock or equity interest.  

     The terminology of preference share

Dividend-Preference share has dividend provision which is either cumulative or non-cumulative. Cumulative provision of dividend which means any dividend not paid by the company accumulates. The firm must pay these cumulative dividends prior to the payment of the common stock dividend.

An investor contemplating the purchase of preference shares with a non-cumulative dividend. Provision needs to be especially diligent in the investigation of the company because of the investor’s potentially weak position.

Participating preference share-Preference shares mostly non-participating. The preference shareholder receives only the stated dividend. It has surrendered claim to the residual earnings of his company in return for the right to receives his dividend.  Dividends paid to common shareholders.

Voting rights-Preference shares do not normally confer voting rights preference shareholders. Not allowing to vote is that they are in a relatively secure position.  They should not right to vote to expect in the special circumstances.

Convertible-Convertible means that the owner has the right to exchange a preference share for a share of the equity. The holder of convertible preference share usually has a stronger claim .the holder of an equity share to earnings and assets.
A company earnings increase, the convertible preference share will rise in value. The company might call preference share, the preference shareholder given the required number of days notice this will enable him to either convert into equity or sell the stock.

Par value- Most of the preference share has a par value at the dividend right. A call price usually stated in terms of the par value.

 Sinking fund retirment-Preference share are often a certain percentage of earnings allocated for redemption each year. Sinking fund share called a lot or purchased in the open market.The owner of preference share called for sinking fund purposes must seek alternative investment.Sinking fund requirements reduce preference share outstanding which will give the remaining shares a strong income position.

Features of preference share

The following are the features.
->Claims-Preference shareholders have a claim on assets and income prior to ordinary shareholders. Equity shareholders have a residual claim on a company’s income and assets. They are the legal owners of the company.

->Dividend-The dividends rate is fixed in the case of preference share. It may be issued with cumulative rights. In the case of equity shares neither the dividend rate known nor does dividend accumulate. Dividends paid on preference and equity shares are not taxed deductible.

->Redemption- Both redeemable and irredeemable preference shares have a maturity date while irredeemable preference shares are perpetual equity shares have no maturity to date.

->Conversion- A company can issue convertible preference shares. That is after a stated period. Such shares converted into ordinary shares.

                           Valuation of preference share

A company may issue two types of shares.
a)Ordinary shares
b)Preference shares

Preference shares have preference cover ordinary shares in terms of payment of dividend and repayment of capital. If the company is wound up. They issued with or without a maturity period.

Redeemable preference shares with maturity. Irredeemable preference shares are shares with maturity.

Irredeemable preference shares are shares without any maturity. The holders of preference shares get dividends at a fixed rate with regards to dividends. Preference shares get dividends at fixed rate with regard to dividends. It issued with or without cumulative features.

In the use of cumulative preference shares, unpaid dividends accumulate and are payable in the future. Dividends in arrears accumulate in the case of non-cumulative preference shares.



Bill Discounting

Bill Discounting, as a fund based activity. According to Indian negotiable act 1881, “The bill of exchange is an instrument in writing containing an unconditional order, signed by the maker

Directing a certain person to pay a certain sum of money only to, or to the order of the certain person, or to the bearer of that instrument.

Bill discounting is an asset-based financial service. The aspect of bill discounting covered include its  advantages and disadvantages. Bill markets schemes, procedures and processing,post-securities scam position, and some grey-areas.The main points also summarised.

Creation of Bill discounting

Suppose a seller sells goods or merchandise to a buyer who would like to pay only after some time. That is the buyer would wish to purchase on credit.To solve this problem the seller draws a B/E of a given maturity on the buyer.
The buyer who is the debtor called the drawee. The seller then sends the bill to the buyer. The buyer acknowledges his responsibility for the payment of the amount on the terms mentioned on the bill by writing his acceptance on the bill. The acceptor could be the buyer himself or any third party willing to take on the credit risk of the buyer.

Discounting of bill of exchange

The seller,who is the holder of an accepted B/E has two option.
1)Hold on to B/E till maturity and then take the payment from the buyer.
2)Discount the B/E with a discounting agency.

The margin between the ready money paid and the face value of the bill called the discount and calculated at a rate percentage per annum on the maturity value.
Types of Bill
Bill classified in the basis of when they are due for payment.following are the type of bill.
1)Demand bill-This is payable immediately the drawee, when “due date” or time not specified on bill .such a type of bill called demand bill.
2)Usance bill-When time period recognized by custom or usage for payment of bills that is a usance bill also called time bill.
3)Documentary bills-When trade takes place between a buyer and the seller of goods.B/E accompained by the documents that contain included invoices and railway receipts, lorry receipts, and bill of lading issued by customs officials.

Advantage of bill discounting

The advantage of bill discounting to investors and banks and finance companies are as follows.
To investors
1)Short-term sources of finance.
2)Bills discounting being in the nature of transaction is outside the purview of section 370 of the Indian Companies Act 1956. It restricts the amount of loans that can be given by group companies.
3)Since it is not a lending, no tax at source deducted while making the payment charges which is very convenient. Not only from a cash flow point of view but also from the point of view of companies that do not envisage tax liabilities.
4)Rates of discount are better than those available on ICDs
5)Flexibility, not only in the quantum of investments but also in the duration of investments.

Factoring V/S bill discounting

Factoring should be distinguished from bill discounting. Bill discounting or invoice discounting consists of the client drawing bills of exchange for goods and services on the buyer. Discounting it with a bank for a charge,like factoring, bill discounting is a method of financing.

Bill discounting has the following limitation in companies to factoring.
i)Bills discounting is a sort of borrowing while factoring is the efficient.  Specialized management of book debts along with enhancing the client’s liquidity.

ii)The client has to undertake the collection of book debt. Bill discounting is always ‘with recourse’ and as such the client not protected from bad-debts.

iii)Bills discounting is not a convenient method for companies having a large number of buyer. Small amounts since it is quite inconvenient to draw a large  number of bills.

Hire purchase

In hire purchase, the goods are let on hire. The purchase price to pay in installment.
A hire purchase agreement is defined as a particular kind of transaction in which the goods are let on hire with an option to the hirer to purchase them.

Following stipulation in hire purchase system.

1)In a specific time period payment made in installment.
2)Possession delivered to the hirer at the time of entering the contract.
3)The property in the goods passes to the hirer on payment of the last installment.
4)Each installment treated as hire charges so that if default made in the payment of any installment the seller becomes entitled to take away the goods and services.
5)The hire/purchase is free to return the goods without required to pay any further installment due after the return.

Hire purchase v/s installment  payment
In an installment sale, the contract of sale entered into, the goods delivered and the ownership transferred to the price of the goods paid in specified installments over a  definite period.

 The distinction between hire purchase and installment purchase 
1)The first difference  based on the call option(to purchase the goods and services time during the term of the agreement and the right of the hirer terminate the agreement at any time before the payment of the last installment(right of termination)

2)In installment sale, the ownership in the goods passes on to the purchaser simultaneously with the payment of the first installment, whereas in hire purchase the ownership transferred to the hirer only when he exercises the option to purchase on payment of the last installment.

                 Legal framework of hire purchase

This act passed in 1972.An amendment bill introduced in 1989 to amend some of the provisions.
Act contains a provision for regulating
1)The format contents of the hire purchase agreement.
2)Warrants and the condition underlying thee hire purchase agreement.
3)Selling on hire purchase charges.
4)Rights and obligations of the hirer and the owner.

In absence of any specific law, the hire purchase transaction governed by the provision of the Indian contract Act and sales of Good Act.
1)An aspect of bailment of goods covered by the contract Act
2)An element of sale when the option to purchase exercised by the hirer is trending purchase which covered by the sale of a good act.

                      Sales of goods act

In the absence of any specific law, this transaction governed by the provision of the Indian contract act and the sales of goods act. This transaction agreement has two aspects.
i)An aspect of the bailment of goods covered by the contract act.
ii) An element of sale when the option to purchase exercised by the hirer intending purchase which covered by the sales of Goods Act.

A contract for sales of goods
A contract of sales of goods is a contract where the seller transfer or agrees to transfer the property in goods to the buyer for a price. It includes both an actual sale and an agreement to sell which vastly differ from the seller to the buyer the contract called a sale.
Where the transfer of property in the goods is to take place at a future time or subject to some conditions to be fulfilled later, called an agreement to sell.


                               Essential ingredients of sale

A contract of sale is constituted of the following elements.
a)Two parties->namely, the buyer and the seller, both competent to contract to effectuate the sale.
b)Goods->The subject -matter to be transferred from the seller to the buyer.
c)Money consideration->For the goods, known as ‘price’.
d)Transfer of ownership->The general property in the goods from the seller to the buyer.
e)Essential of valid contract-Under the  Indian Contract Act.


Interest rate market

For any given currency many different rates are regularly quoted.These include mortgage rates prime borrowing rates, deposit rates.Interest rate applicable on the credit risk situation.Higher the credit risk higher Interest rate .In this post we discuss about three rate which is important for option and future market .

Treasury rate-: Treasury rate applicable to borrowing by a government in its own currency  U.S.treasury  rates are the rates at which the U.S. government can borrow in U.S.dollar. Indian treasury rates are the rate at which  Indian government can borrow in Indian Rupee thats why their is no chance that government will default on an obligation denominated in its own currency.

LIBOR rate– Large international bank actively trade with each other.1 month 3 month,6 month and 12 month deposits denominated in all the world’s major currencies.If at particular time .Citi bank bid rate and offer rate to other banks for six month deposit  in australian dollar .The bid rate is known as the London Interbank Bid Rate(LIBID).The offer rate is known as the London Interbank offer rate or LIBOR.The rates are determined in trading between bank and change as economic condition change .If more bank borrow funds than lend funds.LIBID and LIBOR increases, If the reverse is true they decrease .LIBOR rates are generally higher than the corresponding treasury rates because they are not risk free rates.There is always a chance bank borrowing money will default large financial institution and banks tend to use the LIBOR rates rather than the treasury rate.The reason is that financial institution invest surplus fund in the LIBOR market and borrow to meet their short term funding requirement in the market.

Repo rate -Repurchase agreement(repo). This is a contract  where an investment dealer who owns securities are to sell them to another.Company now and buy them back later at slightly higher price.Difference between the price at which the securities are sold and the price at which they are repurchase is the interest earns. the loan involve very little credit risk.If the original owner of  the securities does not honor the agreement the lending company simply keeps the securities.If landing company does not keep to its side of agreement.The original owner of the securities keep the cash .Most common type repo is an overnight repo,longer term Repo called term repo.

Zero rates– Zero coupon rate of interest earned an investment that started today and lasts for n years all the investment and principal is realized at the end of n years.There are no intermediate  payments.The n year zero rates is sometimes also referred to as the n-year spot rates

Forward Market

Forward market is an over the counter market.lets understand what is OTC market?Over the counter market Over the counter market is an important alternative to exchange and measured in term of total volume and trading.It is a telephone and computer linked network of dealers who do not physically meet.Trades are done between a financial institution and one of its corporate clients.Trades in the over-the-counter market are typically much larger than trade in the exchange traded market .

Now understand what is forward contracts?
A forward contract is particularly simple derivative.It is an agreement to buy or sell an asset at a certain future time for certain price.

“Forward contract is traded in the over-the-counter market.Usually between two financial institution and one of its clients.” forward contract on foreign exchange are very popular most large bank have “forward desk” within their foreign exchange trading room.

Forward in the debt market.
The forward contracts that are found in the debt market are.
1) Forward Interest rate contracts:-Forward interest rate for a future period of time implied by the rates prevailing in the market.Forward interest rates are the rats of interest implied by current zero rates for periods of time in the future.

2)Repurchase agreements(Repo rate):-Repurchase agreement a contract where an investment dealer who owns securities agrees to sell them to another company now and buy them back letter at slightly higher price.
The difference between the price at which the securities are sold and the price at which they are repurchase is the interest it earns.The interest rate is referred to as the repo rate.

Type of repurchase agreement .
1) Open repurchase agreement :-Open repurchase agreement is where there no agreed termination date.Both parties have the option to terminate the agreement without notice .Rate of these agreement is usually a floating rate.
2)Fixed term repurchase agreement-Where the rate and the term are agreed at the outset of the agreement.The term of repos usually ranging from a day to a few months.

3)Forward rate agreement:-A forward rate agreement is an over-the-counter agreement that a certain interest rate will apply to a certain principal during a specified future period of time. FRA is agreement between two parties based on a notional amount for an contract period.This is a contract where interest rate is fixed for future.FRA hedge the interest rate risk.its consist of one to six month.







Credit derivatives

Credit derivative are contracts where the payoff depends on the creditworthiness of one or more commercial or sovereign entities , credit derivative allow companies to manage their credit risk actively.

According to the definition, the use of the derivative security determines whether the derivative is a credit derivative or not. A simple derivative contract like a forward contract on a defaultable bond may be credit derivative to one counter party risk.(because he intends to use it to manage credit risk) and not a credit derivative to another.

Credit derivative bilateral contract between debtor and creditor.It allows the creditor to transfer the risk of the debtor default to a third party.

What are derivatives?
As the name suggests derivatives are based on or derived from an underlying  asset and the way to evaluate derivatives is to value an equivalent structure of assets (or liabilities)
All derivatives are redundant because they can be replicated with a bundle of straight forward basic operations.Derivative have one decisive advantage over the underlyining bundle of assets and that is transaction costs.
It is not an uninteresting perspective to look at stocks and bonds as primitive options.

How credit derivative works
A credit derivative can remove the risk of default. Lender and borrower both can use it. By use of credit derivative banks has the right to transfer the risk of default to the third party.

Type of credit derivative
Credit default swap(CDS)
Total return swap
Credit spread option

Credit default swap->A credit default swap (CDS) is a contract that provides insurance against the risk of default by a particular company.The company is known as the reference entity and default by the company is known as the reference entity and default by the company is known as a credit event.The buyer of the insurance obtains the right to sell a particular bond issued by the company for its par value when a credit event occurs. The bond is known as the reference obligation and the total par value of the bond that can be sold is known as the swap’s notional principal.
The buyer of CDS makes periodic payments to the seller until the end of the life.If the CDS or until a credit event occurs.

Credit derivative allow companies to manage their credit risk actively.

a)Binary credit default swaps-> Binary credit default swap can be quite sensitive to the expected recovery rate estimate. This is structured similarly to a regular credit default swap. Except that the pay of is a fixed dollar amount. In this case, the expected recovery rate affects the probability of default but not the payoff. As a result, the credit defaults spread is quite sensitive to the recovery rate.

b)Basket credit default swaps-> In a basket credit default swap there are a number of reference entities.An add-up basket credit default swaps.One an each reference entity.A first to default swap provides a payoff only when the first reference entity defaults.

2)Total return swaps->A total return swap is an agreement to exchange the total return a bond or other reference assets for LIBOR plus a spread. The total return includes coupons interest and the gain or loss on the assets over the life of the swap.A total return swap always used as a financing tool.

The payer retains ownership of the bond swap and has much less exposure to the risk of the receiver defaulting than it would have if it had lent money to the receiver to finance the purchase of the bond. The total return swap is similar to repos. They are structured to minimize credit risk when money is borrowed.
There are number of variation on the change  in value of the bond.there physical settlement where the payer exchange the underlying asset  for the notional principal at the end of the life of the swap.Sometimes the change in value payments are made periodically rather than all at the end.

3)Credit spread options->Credit spread option are options where the pay off depends on either  a practical credit spread or the price of a credit-sensitive asset. Typically the options are structured so that they ease to exist if the underlying assets default. If a trader wants protection against both an increase in a spread and a underuritylying asset defaults then both credit spread option and another instrument such as credit default swap are required one type of credit spread option is defined so that it has a payoff of.
where S_{T} is a particular credit spread at option maturity
K=Stike spread

Another type of credit spread option is a European call or put option on a credit sensitive asset such as a floating rate note.










Financial services

Financial services is an intermediary activity involved in security the saving of the public fund and facilitating them to be available to the needy for investment.The presence of well organized financial system is highly imperative for the development of any country.Financial system is the nerve point which are accelerate the economic growth.

Role of financial services
Saving culture
Investment opportunity
Neutralizing the risk
Enhancing the return
Economic development

Type of financial service
Saving oriented service
Investment related service
Facilitating service
Income related service

Classification of financial services
Financial services offered not only lending and deposit money but also serve many more thing like easy banking,investment.This era of digitalization.Technology made services more easy and advanced like mobile banking and e-wallets.

Classifying services
Fund based activities
Dealing with security market services
Underwriting of share debenture and bond
Participating in new issue market new issue market
Dealing in foreign exchange market

Non-fund based activities
Financial institution provide services on fee basis that is called non-fund based activity.Financial product are taken by clients only when they are suitably supported with the services.Capital market consist of term lending institution and investing institution which mainly provide long term fund.Money market consist of commercial bank,co-operative bank.Financial services industry include all kind of organization which facilitate services for both individuals and corporate customer.










Investment media includes bonds and debentures. This form of investment needs of a risk avertor who is primarily interested in steady returns. Coupled with the safety of the principal sum.
Definition of bond
A debenture is a legal document containing an acknowledgment of indebtness by a company. It contains a promise to pay a stated rate of interest for a defined period. Repay the principal at a given date of maturity.
Bond is a formal legal evidence of a debt and are termed as the senior securities of a company.

                           Why issuing bonds

The government has no choice but he borrows when they are unable to meet their express from the current revenue corporation. On the other hand, have a wider choice in the matter of financing their operation. Retained earnings, new equity issues, etc. They still prefer to go in for borrowing for the following reason.

1) To reduce the cost of capital ->Bonds are the cheapest source of financing. A corporation is willing to incur the risk of borrowing in order to reduce the cost of capital. Financing a portion of its assets with securities bearing a fixed rate of return of increasing the ultimate return to the equity holder.

2)To gain the benefit of leverage->Presence of debt and preference share in the company’s financial leverage. When financial leverage is used changes in earnings before interest and tax(EBIT) translate into the larger changes in earning per share. If EBIT falls and financial leverage is used the equity holders endure negative changes in EPS that are larger than the negative decline in EBIT.

3)To effect tax-saving-> The interest on bonds is deductible in figuring up corporate income for tax purposes, Hence the Eps increase. If the financing is through bonds rather than with preference or equity share.

4) To wider, the source of a funds->The corporation can attract fund from individual investor and especially from those investing institutions which are reluctant or not permitted to purchase equity share.

5)To preserve control->An increases in debt does not diminish the voting power of present owners since bonds ordinarily carry no voting right.

                                  Types of Bonds

1) Sinking fund bonds->Sinking fund bonds arise when the company decides to retire its bond issue systematically by setting aside a certain amount each year for the purpose.This person the users the money to call the bonds annually at some call premium or to purchase then or the open market if they are selling at discount.

2)Mortgage or secured bonds ->The term mortgage generally refers to a lien on real property or buildings mortgage bonds may be an open-end close end and limited open-end. An open-end mortgage means that a  corporation under the mortgage may issue additional bonds.
In close end mortagage the company agrees to issue at one time a stated amount of bonds.
In a limited open-end mortagage.The indenture provides that corporation may issue a stated amount of bonds over a period of years in series.

3)A convertible and non-convertible bonds->A convertible bond is a cross between a bond and a stock.The holder can at his option convert the bonds into a predetermined number of shares of common stock at a predetermined price. In all convertible bonds, the indenture contract specifies the term of conversion and the period during which the conversion privilege can be exercised.

4)Serial bonds->Serial bonds are appropriate for companies that wish to divide their issues into a series each point of the series maturing at a different time ordinarily the bonds are not callable and the company pay each part of the series as it matures.|

5)Collateral trust bonds->Collateral trust issues are secured by a pledge of intangibles usually in the form of stocks and bonds of a corporation collateral trust issue are thus secured by
a)Shares, representing ownership incorporation.
b)Bonds, representing the indirect pledge of assets or a combination of both, usually, the pledged securities are those of other corporations. The shares pledged frequently represent a contract of a subsidiary corporation and such control often materially adds to or detracts from the intrinsic value of collateral issues secured thereby.

6)Convertible and Non-convertible bonds-Convertible bonds can be one of the finest holdings for the investor looking for both appreciations of investment and income of bonds. A convertible bond is a cross between a bond and a stock. Convert the bond into a predetermined number of shares of common stock at a predetermined price.

7)Income bonds->Income bonds on which the payment of interest is mandatory only to the extent of current earnings.If earnings are sufficient to pay only a portion of the interest that portion usually required to be paid. Income bonds are not offered for sale as new financing but are often issued in reorganization or recapitalization to replace other securities.

8)Adjustment Bonds->Adjustment issued in the reorganization of companies in financial difficulties. In practically all cases, interest is payable only if earning permits. They are the leading type of income bond.

9)Assumed bonds->Assumed bonds issued in the reorganization of companies in financial difficulties. In practically all cases, interest is payable only if earning permits. They are a leader type of income bond.

10)Adjustment bonds->Adjustment bonds issued in the reorganization of companies in financial difficulties. In practically all cases interest is payable only if earning permit. They are lading types of income bonds.

11)Joint bonds->Joint bonds are loan certificates that is jointly secured by two or more companies,two companies that use a common facility, and have raised money to finance. It through the sale of debt would provide a good example of a situation where the bonds might jointly secure.

12)Guaranteed bonds->Bonds may be guaranteed by a firm other than the debtors. Some guarantors assure payment of both principal and interest only. A guaranty or lease contract will add assurance to a bond if the guarantor or lessee is financially strong.

13)Redeemable and irredeemable bonds->A redeemable debenture is a bond which issued for a certain period on the expiry of which its holder will be repaid the amount thereof with or without premium. A bond without the redemption period is termed as an irredeemable debenture.

14)Participating bond->Companies with poor credit position issue participating bonds. They have a guaranteed rate of interest but may also participate in earning up to an additional specified percentage.