Financially How would You Relate …..

Goldfinger, Beverly Hills Cop,

Lethal Weapon 2, Die Hard, Heat,
Mission Impossible, Panic Room ,
Steal and the TV series 24, The
Flash and Monk.

BEARER BONDS
Sushant Gopalkrishna FK-1822
 DEFINITION….

An unregistered, negotiable bond on which

interest and principal are payable to the
holder, regardless of whom it was originally
issued to. The coupons are attached to the
bond, and each coupon represents a single
interest payment. The holder submits a
coupon, usually semi-annually, to the issuer or
paying agent to receive payment. Bearer
bonds are being phased out in favor of
registered bonds. They are also called coupon
• Bearer bonds are bonds that are owned by
whoever is holding them, rather than having
registered owners like most other securities.

• This is useful for investors who wish to retain

anonymity. Recovery of the value of a bearer
bond in the event of its loss, theft, or destruction
is usually impossible.
 HISTORY…

• Bearer bonds were most likely first used in the United States during
the post-Civil War era to fund Reconstruction (1865–1885).

• Europe and the Americas followed this because if its utility

• In the United States, because of Tax Equity and Fiscal Responsibility

Act of 1982, debt issued in bearer form has been discouraged. The
interest on any such bonds issued after 1982 would be taxable to the
issuer in the case of corporate bonds, and taxable to the holder in the
case of municipal bonds.

• In the United States all the bearer bonds issued by the U.S. Treasury
have matured. They no longer pay interest to the holders. As of May
2009, the approximate amount outstanding is Rs.100 million.
 WHY WOULD AN INVESTOR CHOOSE THIS UNUSUAL
INSTRUMENT?

• Bearer Bonds have historically been the financial

instrument of choice for money launderers, tax
evaders.

• Easily Negotiable

• Ease of Ownership Transfer and the characteristic

anonymity

• Very often exploited to evade taxes or conceal

 RISK IN BEARER BONDS

• Interest and Principal will be paid without question to

anyone tendering a bond certificate.

• Creates great risk for the legitimate owner in case of

theft or lost.

• Untraceable.

• Given the long life of some bearer bonds, the possibility

that an issuer may not be around to make good on its
promise to pay at maturity can increase over time, and
pursuing one's right to payment in the courts would
mean surrendering the anonymity of ownership that was
 FUTURE OF BEARER BONDS

• Most bearer bonds in circulation today were issued

when interest rates were relatively high. As a result,
over the years, many of them were called before their
maturity dates in order to reduce the carrying costs to
the issuers.

• There are U.S.-issued bearer bonds still in circulation

because of their long lifespan - up to 50 years - but,
according to an article that appeared in The New York
Times on February 13, 2006, by 2013 most of these
bonds will have become extinct.
• The New York Times also revealed that the Depository
Trust Company (DTC), one of the world's largest
securities depositories, has only a relative handful
(compared to previous numbers) Bearer Bonds left.

• Compare that to 1991, when the company was

responsible for handling 21 million bearer bonds, or 42
million coupons, a year; today the number of bonds in
the DTC vault has fallen to below 700,000 coupons a
year, about Rs.3.5 billion worth, not including interest.
 CONCLUSION

• While the bearer bond has been around for a

number of years, the concept is beginning to lose
some of its appeal. More investors are
demonstrating interest in registered bonds as
their negotiable bonds of choice.

• Registered bonds are more stable and uniform in

structure than the bearer bond and investors can
manage to make a decent amount of interest
from registered bonds.
 YIELD

Yield
 WHAT IS YIELD….

• Yield is a figure that shows the return you get on a bond. The simplest
version of yield is calculated using the following formula: yield = coupon
amount/price. When you buy a bond at par, yield is equal to the interest
rate. When the price changes, so does the yield.

An example: If you buy a bond with a 10% coupon at its Rs.1,000 par
value, the yield is 10% (Rs.100/Rs.1,000).
• But if the price goes down to Rs.800, then the yield goes up to 12.5%. This
happens because you are getting the same guaranteed Rs.100 on an asset
that is worth Rs.800 (Rs.100/Rs.800). Conversely, if the bond goes up in
price to Rs.1,200, the yield shrinks to 8.33% (Rs.100/Rs.1,200).
 YIELD TO MATURITY

Yield To Maturity matters are always more complicated in

real life. When bond investors refer to yield, they are usually
referring to yield to maturity (YTM). YTM is a more advanced
yield calculation that shows the total return you will receive
if you hold the bond to maturity. It equals all the interest
payments you will receive (and assumes that you will
reinvest the interest payment at the same rate as the
current yield on the bond) plus any gain (if you purchased at
a discount) or loss (if you purchased at a premium).

Current Yield = [(Coupon Rate ÷ Bond Price) x Par Value] + [(Par Value -
Bond Price) ÷ YTM]
Apart from yield to maturity, an investor may need
to know two other types of yields. These are:
Coupon yield: The annual interest rate that is
fixed at the time of the issuance of a bond.

Current yield: The ratio of the annual interest

payment to the bond's current price.
 THE LINK BETWEEN PRICE
AND YIELD

The relationship of yield to price can be

summarized as follows:

When price goes up, yield goes down and

vice versa. Technically, you'd say the bond's
price and its yield are inversely related.
THANK YOU