right so in this part of the course we
are learning about capital markets let’s focus our attention on debt capital
markets also known as DCM when companies must raise capital issuing bonds is one
way to do it to a certain extent bonds are similar to bank loans although there
are a few important differences investors lend money to a borrower which
can be a corporation or a government they agree to do this because they
expect that after a period of time the borrower will repay them back their
capital and will pay them interest for using their money the table you see on
your screen shows you the four types of bonds we can have fixed rate bonds
floating rate bonds equity related bonds and asset-backed securities fixed rate
bonds are securities with a predetermined rate of return for the
investor the interest rate is fixed and does not change throughout the life of
the bond typically bonds have a maturity of 5 10 or 20 years and every year
investors receive a fixed interest payment at the end of the contract
when the bond matures investors will receive their last interest payment plus
a complete reimbursement of their initial capital floating rate bonds are
linked to a reference rate for example bonds issued in the US can have an
interest rate of federal interest rate plus 3 percent this interest rate
fluctuates over time hence the bond pays a variable interest
rate equity related bonds are complex these are debt securities paying an
interest rate that can be converted into equity under certain conditions some
bonds give investors the option to convert their securities if they hold
them for a certain number of years they can be tempted to do so if the company
performs well and its share price increases significantly asset-backed
securities are a fruit of the so-called financial engineering the
are offered by a project vehicle containing different types of assets the
vehicle can be composed of mortgage loans credit card receivables auto loans
and other similar assets all right so these are the types of bonds being
issued in financial markets in our next lesson we will discuss why companies
issue bonds and what type of advantages and disadvantages derive from that