• India's Budget Gets Recovery Right, Long-Term Development Wrong
    A boost in spending is good news for the immediate recovery from the pandemic, but India still lacks a platform of policies that would allow it to become an upper-middle-income country.Read more Convertible Bond Pricing
  • What Is a Perpetual Bond
    Bonds are debt instruments that governments and companies use to raise finance. They can use this finance according to their needs. The people who pay for it become the lenders. After a specific period, the borrower entity must repay the amount to the people from whom they have taken the loan. It is how usual bonds work. However, there are some variations to this structure of bonds. What is a Perpetual Bond? A perpetual bond is a type of bond issued by entities that does not have a maturity date. Essentially, these bonds run forever. Therefore, the borrower has to pay the lender an interest payment forever. In essence, perpetual bonds are equity rather than debt. It is because they run throughout the company's lifetime and have some other characteristics similar to equity. How do Perpetual Bonds work? Primarily, perpetual bonds are debt instruments. Through the issuance of these bonds, companies receive finance for their activities. However, in essence, these are not debt obligations. The issuer of the bond does not have to repay the lender at any time in the future. The bond runs for perpetuity as it does not come with a maturity date or a promise of repayment. The bond issuer has to pay the borrower interest payments on the bond. Perpetual bondholders get interest payments throughout their ownership regardless of whether the entity makes a profit or loss. However, because the borrowing entity does not have to repay the loaned amount, it also gives perpetual bonds equity characteristics. For investors or lenders, perpetual bonds are similar to dividend-paying stocks. However, dividend-paying stocks do not come with fixed returns. On the other hand, perpetual bonds do. Perpetual bonds also provide investors with a steady income. But unlike dividend-paying stocks, they cannot earn more when the company makes higher profits. Similarly, these bonds don’t come with any voting rights. Perpetual bonds share a close relationship with annuities. Annuities are investments that provide an unending stream of income to investors. In the same way, perpetual bonds come with interest payments to investors for an indefinite period of time. What are the advantages of Perpetual Bonds? Perpetual bonds have some advantages for investors. They come with a steady source of income, which some investors prefer. Similarly, the interest payments on these bonds are predictable and come after a predetermined amount of time. For investors that like to have assurance about their income, perpetual bonds are a great option. Some perpetual bonds also come with increasing interest rates. Usually, the issuer sets the bond’s interest rate to increase at predetermined points in the future. It is great for when the interest rates in the market increase, so borrowers get compensated for their investments. What are the disadvantages of Perpetual Bonds? Perpetual bonds also come with some disadvantages. Firstly, investors can receive better returns on equity investments compared to these bonds. For companies that have significant profitability increases, investors earn lower returns on perpetual bonds. Perpetual bonds also come with credit risk. If the entity that issues these bonds liquidates, investors can lose all their investment. Similarly, when the interest rates in the market rise, perpetual bonds will not provide the best returns. Conclusion Perpetual bonds are bonds that run forever. Issuers have to pay interest payments on these bonds but don’t have to return the borrowed amount. Perpetual bonds can have several advantages due to the fixed income that investors get. Article Source Here: What Is a Perpetual Bond Read more Convertible Bond Pricing
  • What is Asset-Backed Securities
    Securitization is the process where issuers design a marketable financial instrument by pooling several financial assets into one group. Then, they sell the group of repackaged assets to investors. There are various types of securities that come as a result of securitization. Among those, one is the asset-backed securities. What is Asset-Backed Securities? Asset-backed securities (shortly known as ABS) represents a pool of loans that issuers package and sell to investors as securities. These securities come as a direct result of securitization. Asset-backed securities typically consist of home mortgages, credit card receivables, auto loans, home equity loans, and student loans. Asset-backed securities have a pool of underlying assets. Issuers cannot sell most of the above types of loans separately. Therefore, they use asset-backed securities to securitize them. It provides investors with even further investment opportunities. Similarly, it allows issuers to remove any risky assets they have from their balance sheets. Most bond mutual funds or index funds expose investors to asset-based securities. Some exchange-traded funds also trade based solely on asset-backed securities. How do Asset-Backed Securities work? When borrowers take out a loan, it is their liability. For the issuer or lender, however, it is an asset on their balance sheet. However, the transaction does not stay between the borrower and the lender. The lender in this transaction can further sell the assets to other parties. These parties then package these assets into asset-backed security that they sell in the public market. Investors that own asset-backed securities receive payments when the borrower makes principal and interest payments. What are the advantages of Asset-Backed Securities? There are various advantages of asset-backed securities. Firstly, they reduce the risks associated with investing in debt instruments, such as default or credit risks. Investors receive interest and principal payments from various assets without having to take direct risks from them. It is because asset-backed securities expose investors to only a portion of the risks that come with the underlying assets. Due to the lower risks, higher returns, and more stability, investors can also use asset-backed securities as an alternative to government bonds. Investors looking to develop a diversified portfolio of investments can also provide these securities in their portfolios. Similarly, by providing asset-backed securities, lenders can remove any risky loans from their financials. It is because lenders securitize the loans to repackage and sell them to investors. Through this, they can also generate more funds to issue even more loans for their business. This way, the lender also gets a benefit from these securities. What are the disadvantages of Asset Based Securities? Despite the advantages, asset-based securities also come with some disadvantages. For some investors, they work out great. However, there are also practical examples of these securities failing, especially during the Great Recession. These investments aren't for everyone. Since these securities come with underlying loans, it requires investors to perform considerable research beforehand. The data is not usually available like other securities. Asset-based securities also come with prepayment risks. It represents the chance that investors may experience reduced cash flows due to early payments by borrowers. This risk is higher when borrowers can refinance their existing loans at lower rates. Conclusion Asset-backed securities are a pool of loans, packaged and sold by issuers. They come as a result of a process known as securitization. Asset-based securities can be advantageous for both investors and lenders. However, they also come with some disadvantages, as discussed above. Post Source Here: What is Asset-Backed Securities Read more Convertible Bond Pricing
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  • Alexandria Ocasio-Cortez describes taking shelter during the Capitol siege: 'I thought I was going to die'
    Rep. Alexandria Ocasio-Cortez, D-N.Y., walks up the House steps for a vote in the Capitol on Thursday, Sept. 17, 2020. Bill Clark/CQ-Roll Call, Inc via Getty Images In an Instagram Live on Monday night, Rep. Alexandria Ocasio-Cortez talked about her traumatizing experience seeking safety in the Capitol buildings during the January 6 insurrection.  Ocasio-Cortez said she mistook a Capitol Police officer banging on her office door for rioters and hid in her bathroom, fearing for her life.  "We're sheltering and I'm thinking what do we do if the building explodes?" she said.  Visit Business Insider's homepage for more stories. Rep. Alexandria Ocasio-Cortez opened up about her experience seeking safety in the Capitol buildings during the January 6 insurrection in an emotionally-charged Instagram livestream on Monday night. Ocasio-Cortez described being inside her congressional office with a single staffer, her legislative director Gerardo Bonilla Chavez, in the early afternoon when they heard "huge, violent bangs" on the door of her office. Bonilla Chavez told her to "run and hide," so Ocasio-Cortez ran into the bathroom.  "I thought I was going to die," she said. "I have never been quieter in my entire life." But then she heard Bonilla Chavez, who she calls "G," say that it was safe and she could come out of hiding. When she emerged from the bathroom, she discovered that it was a Capitol Police officer, and not rioters, who'd been banging on her door. The officer directed her to evacuate, unescorted, to a nearby building. Ocasio-Cortez said she and Bonilla Chavez both felt threatened by the officer and weren't sure if he was there to help them.  "It didn't feel right because he was looking at me with a tremendous amount of anger and hostility," she said.  Ocasio-Cortez said the officer hadn't identified himself as police when he'd been banging on the door and was unaccompanied. And she said he didn't tell them where specifically they needed to go in the other building or to bring the safety equipment stored in each congressional office. "Did he not idenfity himself as Capitol Police on purpose? Did he lose himself in that moment?" she said. "Just the very uncertainty that you don't know if this person is trying to protect you or not is very unsettling." The congresswoman and her staffer ran to the other building, looking for a particular member's office when they stumbled upon Rep. Katie Porter's office and asked to take refuge there. "We start hearing the yells of these people … and it just feels like it's a matter of seconds when these doors are going to break through and they're going to get in," she said of hearing the mob outside the building.  Ocasio-Cortez spent several hours with Porter and a few staffers in that office, during which time they braced for an attack. Staffers pushed furniture up against the door.   "I'm preparing for one of the wings of the building to explode," she said. "We're sheltering and I'm thinking what do we do if the building explodes? ... What do we do if they break in?"  The two congresswomen later moved to Rep. Ayanna Pressley's office, where Ocasio-Cortez stayed until around 4 am.  Ocasio-Cortez said she didn't feel safe going to the designated safe room with other lawmakers because she didn't trust the security or some of her GOP colleagues.  During her hour-long livestream, the congresswoman repeated her calls for the Republican lawmakers, including Sens. Ted Cruz and Josh Hawley, who promoted election misinformation and refused to vote for the certification of results to resign. She argued that Cruz and Hawley are a "danger" to their colleagues because of their lack of regret about having helped promote the misinformation that incited the violence. "They chose to tell the lie," Ocasio-Cortez said of the GOP leaders. "All of these things were known in advance and then five, six people have lost their lives. Others have lost eyes, limbs, many more have been traumatized. And yet, after all of that … not even an 'I am sorry,' not even an 'I didn't know that me doing his would result or contribute to this violence.'"  —Parlertakes Read more Convertible Bond Pricing
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  • The Bull Case For Disney Doesn't Justify The Risk
    VIX is the option-implied volatility for options on the S&P 500 that expire within the next thirty days. I tend to analyze longer-dated options to get a more ...Read more Convertible Bond Pricing