FACULTY OF BUSINESS AND MANAGEMENT

ASSIGNMENT/ PROJECT DECLARATION FORM

Student’s Name : MOHAMMAD BUKHARI BIN SUHAIDIN

Student’s ID : 2019402874 Student’s I/C No. : 010928-14-0801

Program Code : BA111 Part : 5 Course Code : FIN358

Course : FUNDAMENTALS OF INVESTMENT

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Assignment/ Due Submission

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Assignment/ : INDIVIDUAL ASSIGNMENT FIN358

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Lecturer’s Name : ILYANI BINTI AZER

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14/11/2021
BUKHARI
Date Student’s Signature
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____BUKHARI___

Name: MOHAMMAD BUKHARI BIN SUHAIDIN

Matric Number: 2019402874
Programme code: BA111
Faculty / Campus: UITM PAHANG KAMPUS RAUB
 INDIVIDUAL ASSIGNMENT FIN358
SECURITY MARKET: BONDS
CLASS
BA1115G

PREPARED BY
MOHAMMAD BUKHARI BIN SUHAIDIN 
[2019402874]

PREPARED FOR
ILYANI BINTI AZER

SUBMISSION DATE
12 NOVEMBER 2021

TABLE OF CONTENTS
 NO. DESCRIPTION PAGE
1.0 INTROUCTION 6
2.0 BODY CONTENT: 7
2.1.1 What are the characteristics of bond
2.1.2 What are the types of bonds 8
2.1.3 What are the significance value of bond to 8–9
investors?
2.2 Who are the parties involved in bond? 9
2.3 Where can we purchase bonds? 10
2.4 When should bond be bought? 10 – 11
2.5 Why are bonds considered very useful? 10 – 11
2.6.1 How can the price of bonds be affected? 11 – 12
2.6.2 How to read a bond table? 12 – 13
3.0 CONCLUSION 13
4.0 APPENDICES 14 – 16

1.0 INTRODUCTION
Generally, financial securities is a valuable asset that can be purchased, sold or traded
(Corporate Finance Institute, 2020). To determine whether an asset is a financial security or not,
it depends on the jurisdiction in which the assets are exchanged (TheStreet Staff, 2021).
Financial Securities are divided into four parts. First, debt securities. Second, equity securities.
Third, hybrid securities. Fourth, derivatives securities.

Throughout the assignment, the financial security that have been chosen to be discussed are
bonds. Bonds are a fixed-income item that symbolises a borrower's loan who are willing to
invest their capital in the expectation of profitable returns as mentioned by James Chen in
Investopedia (2021) to a borrower which commonly are corporate and government (Fernando,
2021). Bonds are widely used in the nations all around the world.

2.0 BODY CONTENT

2.1.1 What are the characteristics of bond?

Term Description
 Face Value Amount of a bond that will be worthy when
it reaches maturity. In determining the
interest payments, the bond issuers will use
the face value of the bond to calculate.
Coupon Rate Bond’s interest rate, that is determined
based on the face value of the bond. The
rate is mentioned in percentage.
Coupon Date The date of the bond’s interest payment.
Maturity Date The due date for the face value payment of
the bonds to its bondholder.
Issue Price The original sale price of the bond
Call Provisions An oblige given to bond issuers to redeem
the bond before maturity date.
Sinking Fund A strategy by which an organization sets
money aside to pay its debts.
Yield to maturity The internal rate of return on a bond held to
maturity, providing principal and interest
payments are made on time.
Market Price The current standard bond price among the
public, it may be above the par value and
below it.
Putability the authorization to compel the issuer to
repay the bond on the put dates, before its
maturity date.
(Studyfinance, 2021) (Courses.lumenlearning, 2019)

2.1.2 What are the types of bond?

First, government bond. Also known as a sovereign bond, is a financial security issued by a
government with the guarantee of periodic interest payments and repayment of the face value at
maturity. Bonds by government are normally valued in the country’s own currency, therefore
failure is not an option for government (BIX, 2019). Among the examples of government are such
as federal government bonds, treasury bills and treasury notes (Corporate Finance Institute,
2019).

Second, corporate bonds. It refers to debt securities issued by both private and public
companies. Companies issue corporate bonds to raise capital for a variety of purposes,
including the development of a new plant, the acquisition of equipment, and company expansion
("NSE - National Stock Exchange of India Ltd.," 2021). Because there is a bigger chance of a
firm defaulting than a government, corporate bonds have higher rates. Because of the risk that
the investor must incur, they may also be the most profitable fixed-income investments. The
credit quality of the firm is critical: the greater the credit quality, the lower the interest rate paid to
the investor (Desjardins, 2021).

Third, zero coupon bonds. This is a bond that does not emphasize payment for coupon and is
instead offered at a considerable discounted rate to its face value and does not stress coupon
payment. (Desjardins, 2021). Zero coupon bonds typically have extended maturities, with many
lasting 10 years or even longer. These long investment dates allow a person to plan ahead for a
long-term goal, such as paying for a child's college education. A deep discount allows an
investor to put up a little quantity of money that will rise over time (U.S. Securities nd Exchange
Commission, 2021).

Fourth, bond derivatives. Bonds can also be sold as part of a financial derivatives package. The
main protected note is one such product that has gained popularity in recent years (PPN). To be
more accurate, PPNs is a fixed-income instrument that assures an investor a guaranteed return
equal to the principle amount invested, regardless of what happens to the underlying assets of
the firm. (Chen, 2021).

2.1.3 What are the significance value of bond to investors?

The first significance value that can be seen on bond is it provides a higher security
value to our money (THE INVESTOPEDIA TEAM, 2021). In general, debt investments are less
risky than equity investments. This is because debtholders have priority over shareholders. As
example, if a firm goes bankrupt, debtholders (creditors) will be paid before shareholders. In this
worst-case situation, creditors may receive part of their money back, so they can recover the
amount invested, but stockholders may lose their whole investment, depending on the value of
the bankrupt company's assets sold (Lumen, 2021).

Besides that, bond provides a more predictable returns. This advantage is very helpful
for certain types of investors, such as retired persons. As we all can imagine the situation of
their disconsistency income, it will be quite disheartening if they chose to invest all their money
to the stock market which consist of unpredictable returns. Retirees can forecast how much
money they'll have in their later years with better precision if they invest in bonds. Then, with
many years till retirement, an investor has plenty of opportunity and time to make up for any
losses incurred during periods of stock market fall.

In addition, bonds provides a higher interest rates compared to the deposit rates paid by
banks. If we’re not planning to use an amount of money in about a year, it is suggested to invest
on bonds since a larger return will be received while offering less risk. A good example that can
be used are the study savings to be used when studying abroad. With bonds, the student may
forecast their investment returns and calculate the amount of money he will need to save for the
study savings by the semester starts.

2.2 Who are the parties involved in bond?

There are mainly three parties that involved in bond agreement. First, the bond issuer. The
issuer is in charge of selling bonds on the bond market in order to support the organisations'
activities. The segment of market are consisted of governments, banks, and companies, with
the government being the most important, since it uses the bond market to support a country's
activities. Banks and other corporations that issue bonds to support their operations are
examples of other issuers. Second, investor which is the party or a person who buys the debt
that is being issued in the market. An investor's major aim is to minimise risk while maximising
return, as contrasted to a risk-taker, who is ready to accept a higher level of risk in exchange for
larger-than-average returns. Third, bond underwriters. This position is among investment
banks and other financial institutions that are assigned in helping the bond issuers for the
underwriting section in the bond market since there are many requirements to sell the bonds in
terms of paperwork preparations (Beers, 2021).

2.3 Where can we purchase bonds?

There are three main methods to purchase bonds. First, we can purchase it through the U.S.
Treasury Department. Treasury Direct is a website where you may buy new Treasury bonds
online. You must be 18 years old and legally able to open a Treasury Direct account. You'll
need a valid Social Security number, a United States address, and a bank account in the United
States. The Treasury does not charge fees or mark up the price of the bond. Second, bond can
be bought through a brokerage. Corporate bonds, treasury bonds, and municipal bonds are all
sold by most internet brokerages. Bonds are available through brokers such as Fidelity, Charles
Schwab, E*TRADE, and Merrill Edge. The purchase process through an online brokerage, on
the other hand, is nothing near as simple as it is with Treasury Direct. Transaction costs and
markups or markdowns cause bond prices to differ from brokerage to brokerage. Third, bond
can be bought through Exchange-Traded Fund. A bond fund is a great option if you don't have
the finances to invest in a range of individual bonds.. Individual bonds are frequently purchased
in big, often expensive chunks. Bond funds provide diversification at a reduced cost. Bond
funds, unlike individual bonds, do not have a predetermined maturity, therefore your interest
payments may fluctuate and your income is not guaranteed.

2.4 When should bond be bought?

Whether the current situation highlights the stability or declination of interest rates, It is and will
always be a good time to invest in bond funds since investors will not lose money due to lower
prices. Even though dropping interest rates would reduce your monthly interest income,
increasing bond prices will compensate you. Consistent interest rates ensure stable pricing
regardless of the actual level of interest rates. Bond fund managers may try to boost returns in a
low-rate environment by investing in some other riskier bonds. (Bank, MBA, & MS Finance,
2018)

2.5 Why are bonds considered very useful?

Bonds are considered very beneficial to a single investor and Companies, governments and
municipalities because there are certain reasons. For an investor, bonds provide a steady
supply of money. Bonds are usually paid twice a year in interest. Furthermore, investors will
receive their whole investment back once the bond reached its maturity date, therefore bonds
are a quite an effective method to save money while investing. In addition, bonds can help
reduce the risk of investing in more volatile stocks. For companies, governments and
municipilaties, they issue bonds because in return they will have a good amount of money to
provide their operation some cashflows. Besides that, they can use the money they get to
finance their debt. Furthermore, the payment received can be used to finance capital
investments in schools, highways, hospitals, and other projects (Investor.gov, 2012).

2.6.1 How can the price of bonds be affected?

Is it possible for the price of bonds to get affected? Yes it does. But how?
1.Changes of interest rate
Bond prices fluctuate in the reverse way of interest rates on the industry. Because of the
dependency factor of discount rate towards current market interest rates occur in estimating the
cash flow of a bond's net present value, this link exists. When economic interest rates go up, the
discount rate on a bond rises, reducing the bond's value since the cash flows are discounted at
a higher rate. When the economic interest rates decrease, a bond's value increase because the
discount rate for cash flows is reduced.

2. Interest Rate on Bonds

The coupon rate on most bonds is fixed for the whole term of the bond. Coupon payments are
usually made twice a year or once a year.

If a bond's coupon rate is higher than the market yield, it will sell over par or at a premium. This
occurs because investors expect the bond's yield to be comparable to current yields. This
means the bond's price will fall until the yield reaches a level close to commercial rates on
bonds with matching creditworthiness and maturity.

However, a bond will sell above par value or at a premium if its coupon rate surpass the market
yield. This is because investors are ready to purchase higher price in exchange for a bigger
return. Keep in mind that the bond's price rises as the yield falls.

3. Maturity of bond

The longer the term of bond, the more prone the changes in interest rates could happenWhen
interest rates rise, the prices of bonds with longer maturities will fall by a greater amount than
those with shorter maturities. When interest rates are lower, the situation will be reversed.

4. Bond Credit Rating

The bond credit rating system helps investors to determine the issuer’s credit risk profile. A
higher credit rating indicates that the issuer has a stronger capacity to service the bond’s
coupon payments or principal repayment on a timely basis, while a lower credit rating indicates
a weaker capacity of the issuer to service its coupon payments and principal repayment. Hence,
bond issuers with lower credit ratings have to offer higher yields to attract investors given the
higher risk involved and vice versa.

The price of a bond may possibly affected by changes that happen in its credit rating. When a
bond's credit rating falls down, the bond's value together will drop and the yield rises. In
contrast, if a bond's creditworthiness is improved, its price rises and the yield lowers.
Regardless of fluctuations in a bond's valuation during the life of the bond owing to interest rate
movements, an investor that keep his bond from the issue date until maturity would not
experience losses. He will obtain back the actual amount of coupon and principal as what he
provide before. Long-term bond fund investors, on the other hand, will be able to weather
interest rate fluctuations in asset prices since the capital will receive all coupons and amortised
held by its bond portfolio over the long term. (Public Mutual, 2021).

2.6.2 How to read a bond table?

The column 1 contains the information on the corporation, province (or state), or nation that is
issuing the bond (issuer). The column 2 is about the set interest rate that the issuer pays to the
lender, which referred to as the coupon. Next, the column 3 refers to maturity date, which his is
the day on which the borrower will return the principle to the investors. Only the final two digits
of the year are often used, thus 25 denotes 2025, 09 denotes 2009, and so on. Afterward, for
column 4 is the b price which is the bond's price that someone is willing to pay. No matter what
the par value is, it is expressed in respect to 100. Consider the bid price in terms of a
percentage: a bid of 95 suggests the bond is trading at 95 percent of its face value. The last
column, column 5 shows the yield. Yield represents the yearly return on the bond until it
matures. This is usually the yield to maturity, rather than the present yield. If the bond is
callable, it will be marked with a "c—," with the "--" representing the year in which the bond can
be called. "C10" indicates that the bond can be called as early as 2010.
3.0 CONCLUSION

From beginning to the end of the contents in this assignment, in all respect, bonds provide a lot
of merit values to the investors. As an investor, we need to be smart in determining the right
investment that should be made at the right time and at the right situation. These factors should
be considered because we will be experiencing the outcomes from the actions made. If it’s a
good move, then a good outcome will occur. And if a wrong move made, it will be vice-versa.
From the questions of What, Who, Where, When, Why and How, the details on bonds are quite
impressive to be put in practically. It is undeniably that bonds are very useful. It’s a bit waste if
all of our savings are just kept shut. My hope is that the good news about bonds will be spread
to public especially for students, so they can obtain exposures about the bonds, and without
further due they will invest to bonds which will help bloom their money.

4.0 APPENDICES
Beers, B. (2021). Who Are the Key Players in the Bond Market? Retrieved November 14, 2021,

from Investopedia website:

https://www.investopedia.com/ask/answers/06/keyplayersbondmarket.asp

BIX. (2019). BIX. Retrieved November 14, 2021, from BIX website:

https://www.bixmalaysia.com/Learning-Center/Articles-Tutorials/Malaysia-Government-

Securities-(MGS)-and-Government

Bank, E., MBA, & MS Finance. (2018). The Best Time to Buy Bond Funds. Retrieved November

13, 2021, from Pocketsense website: https://pocketsense.com/time-buy-bond-funds-

3752.html

Chen, J. (2021). Understanding Investors. Retrieved November 13, 2021, from Investopedia

website: https://www.investopedia.com/terms/i/investor.asp

Corporate Finance Institute. (2019, April 23). Bonds. Retrieved November 14, 2021, from

Corporate Finance Institute website:

https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/bonds/

Corporate Finance Institute. (2020, January 23). Security. Retrieved November 13, 2021, from

Corporate Finance Institute website:

https://corporatefinanceinstitute.com/resources/knowledge/finance/security/

‌Courses.lumenlearning. (2019). Key Characteristics of Bonds | Boundless Finance. Retrieved

November 13, 2021, from Lumenlearning.com website:

https://courses.lumenlearning.com/boundless-finance/chapter/key-characteristics-of-

bonds/

Chen, J. (2021). Principal-Protected Note (PPN). Retrieved November 14, 2021, from

Investopedia website: https://www.investopedia.com/terms/p/principalprotectednote.asp

Desjardins. (2021). Different Types of Bonds | Desjardins Online Brokerage. Retrieved

November 14, 2021, from Disnat.com website:

 https://www.disnat.com/en/learning/trading-basics/bond-basics/different-types-of-bonds?

ancre=topArticle

‌Lumen. (2021). Advantages and Disadvantages of Bonds | Boundless Finance. Retrieved

November 14, 2021, from Lumenlearning.com website:

https://courses.lumenlearning.com/boundless-finance/chapter/advantages-and-

disadvantages-of-bonds/

‌NSE - National Stock Exchange of India Ltd. (2021). Retrieved November 14, 2021, from

Nseindia.com website:

https://www1.nseindia.com/products/content/debt/corp_bonds/about_corp_bonds.htm

Public Mutual. (2021). Understanding the Factors that Influence Bond Prices. Retrieved

November 13, 2021, from Publicmutual.com.my website:

https://www.publicmutual.com.my/Menu/Learning-Hub/Understanding-the-Factors-that-

Influence-Bond-Prices

Staff. (2021, October 27). What Is a Financial Security? Definition, Examples, and FAQ.

Retrieved November 13, 2021, from TheStreet website:

https://www.thestreet.com/dictionary/s/security

Studyfinance. (2021). What is a Bond? | Categories, Characteristics, Price, Varieties, Benefits.

Retrieved November 13, 2021, from Studyfinance.com website:

https://studyfinance.com/bond/

‌TheStreet Fernando, J. (2021). What Is a Bond? Retrieved November 13, 2021, from

Investopedia website: https://www.investopedia.com/terms/b/bond.asp

THE INVESTOPEDIA TEAM. (2021). Some of the Advantages of Bonds. Retrieved November

14, 2021, from Investopedia website: https://www.investopedia.com/investing/bond-

advantages/

‌U.S. Securities and Exchange Commission. (2021). Zero Coupon Bond | Investor.gov.

Retrieved November 14, 2021, from Investor.gov website:

 https://www.investor.gov/introduction-investing/investing-basics/glossary/zero-coupon-

bond

‌U.S. Securities and Exchange Commission. (2012). Bonds | Investor.gov. Retrieved November

13, 2021, from Investor.gov website: https://www.investor.gov/introduction-

investing/investing-basics/investment-products/bonds-or-fixed-income-products/bonds