Payment-in-kind or PIK bonds are a special type of bond that does not make coupon payments in cash. PIK bonds make deferred coupon payments or make them in the form of bonds, preferred stocks, or notes. These bonds are commonly issued by companies in financial distress. These are unsecured loans and offer higher coupon payments […]
Payment in Kind Bonds (PIK): What Are They and How PIK Works? Read More »
An inverse floater is a type of bond that comes with an inverse relation to a benchmark interest rate. Unlike a floater, an inverse floater’s coupon rate goes in the opposite direction to the benchmark interest rate. An inverse floater is a variable interest rate security that follows the benchmark interest rate in the opposite
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Leverage is the use of debt financing in the capital structure of a company. It means the use of borrowed money instead of using equity for funding the company projects. It is also commonly referred to as the ratio of debt to equity. Leveraged finance lowers the cost of capital. It also increases the internal
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Futures contracts or simply Futures are derivatives as they derive their prices from an underlying asset. Futures are traded in standardized forms and are regulated by the Commodity Futures Trading Commission (CFTC). Futures can be used for hedging and speculation. Once agreed, Futures become an obligation to exercise the contract on the expiration date. However,
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Extendable reset bonds come with an option of resetting the coupon rate and extending the maturity date. Both the bond issuer and the bondholder may hold the right to extend the bond’s maturity date. Extendable bonds come with an embedded option to extend the maturity date; hence these bonds sell at higher prices. It also
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A bond issued in one currency and paying coupon payments in another is termed a dual currency bond. Investors and issuers can agree on the terms and conditions, including fixing the conversion rate, maturity, and interest rate at the time of issuing the bond. Dual currency bonds are lucrative fixed-income instruments for foreign investors. However,
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Interest rate changes bring uncertainty to fixed-income instruments like bonds. Duration and Convexity are two concepts that help investors to quantify the uncertainty. Duration measures the sensitivity of the price of a bond due to a change in interest rate. Whereas convexity measures the change in yield and bond price due to a change in
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An auditor’s responsibility is to gather audit evidence regarding a subject matter. This evidence comes from several audit procedures. Based on this evidence, the auditor must conclude whether the subject matter meets specific criteria. In the case of external audits, it includes examining a client’s financial statements to establish whether they are free from material
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Internal controls are an area of high significance for all companies. These controls establish an effective and efficient base for a company’s operations. Through that, they also enhance the company’s financial reporting and other processes. Traditionally, companies did not focus on internal controls. Due to the emphasis on it, companies have now established departments to
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Companies are complex business structures characterized by the issuance of shares to shareholders. These businesses differ from others in various regards, one of which includes directors. Directors are elected individuals in a company responsible for its corporate policies and operations. The number of directors will differ between companies. However, most companies will have at least
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