In Practice Customized Bonds

In keeping with the notion of customizing bonds to match asset cashflows, firms have come up with increasingly creative solutions in recent years. In this endeavor, they have been assisted by two developments. The first is that investors in bond markets are more open to both pricing and buying complex bonds than they were in the 1970s and even the 1980s. The second is that advancements in option pricing allow us to value complicated securities with multiple options embedded in them. Let us consider a few examples:

• In the early 1990s, David Bowie acquired the rights to all of his songs, bundled them and sold bonds backed record sales. What made the bonds unique was the fact that the interest rate on the bonds was tied to the sales of his record - higher (lower) rates with higher (lower) sales.

• In 2001, an Italian soccer team issued bonds to fund the construction of a stadium but tied the interest rate on the bond to the success of the team. Specifically, the interest rate on the bond would rise if the team stayed in the first division (and draw larger crowds and revenues) and drop if the team dropped to the second division.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

Get My Free Ebook


Post a comment