Some Basic Questions on Bonds
boxwalah
leads here:
(1) What are the possible (annual) coupon frequencies a Bond can have?
Is it limited to 0, 1, 2, 3, 4, 6 and 12?
(2) Which ones of the following dates are always available for a Bond:
(a) Issue Date, (b) Dated Date, (c) First Coupon Date, (d) Last Coupon
Date, (e) Maturity Date?
(3) If the First Coupon Date is not provided, can it be assumed that
the first coupon peiod is a normal coupon period? And similarly, if the
Last Coupon Date is not available, can it be assumed that the last
coupon period is a normal coupon period?
Thanks!
Bond Guru
0 - at maturity
1 - annual
2 - semi-annual (90+% use this)
4 - quarterly
12 - monthly
I won't say the bi-monthly (6) and every 4 months (3) aren't used. I'm
sure that someone somewhere has tried to issue bonds with these wacky
frequencies, but most systems won't support or calculate these and so
they would be almost guaranteed that their bonds wouldn't sell.
Question #2. The only date really required for a bond is the maturity
date (unless it is a perpetual). However, you need some of the other
dates in certain cases. If the dated date and the maturity date are in
sync, then everything is fine. However, if the dated date is out of
sync with the maturity date (meaning that it does not fall on a normal
coupon payment date), then you will need to know the first coupon date.
If you don't have the first coupon date, then you can generate it as
one standard coupon period from the dated date and then generate a
short last coupon date. If the first coupon date is supplied and is in
sync with the maturity date, then everything is fine. If the first
coupon date is out of sync with the maturity date, then you will need
supply the last coupon date or generate it. The dated date is the date
on which interest begins to accrue as opposed to the issue date which
is the date when a purchase in the primary market settles. You might
need these values if you are calculating the bond in the new issue
market. Once the bond is seasoned, passes the first coupon date, and
begins trading in the secondary market, you really only need to know
the settlement date and the maturity date and, of course, the schedule
of optional call dates and prices or put/tender dates and prices.
If you have the option, it would be best to require the explicit entry
of dated, first coupon, and maturity and generate a short last coupon
date if you need to. All of these dates should be available in the
offering statement.
Question #3. If the first coupon date is not provided, you must assume
that the first coupon period is a normal period for the bond. If the
first coupon period is provided, then you will only need a last coupon
date if the maturity date does not fall on a standard interest payment
date.
For example: Assume that you have a fixed coupon semi-annual corporate
bond that has a dated date of 3/1/03 and a maturity date of 1/1/26, if
you are not given a first coupon date, then you must generate a first
coupon date of 9/1/03. Since this is out of sync with the maturity
date, you will need to generate a last coupon date of 9/1/25. On the
other hand, if you were given a first coupon date of 6/1/03, then you
will have a short first coupon period and a normal last coupon period.