Redemption bond

A repayment loan (including amortization of bond ) is a bond that during their maturity on certain dates in installments or in a lump sum on the maturity date repaid is.

General

The opposite is the perpetual bond , with which no repayment is planned. Bonds and other debt securities are used by credit institutions and non-banks as issuers to refinance their capital requirements , so that the form of repayment of the bonds often corresponds to the form of repayment of their claims . The latter can be granted as installment loans or annuity loans , especially with banks, so it makes sense to equip the bonds accordingly within the framework of the golden rule of finance .

Installment and annuity bonds

Back of the annuity bond of AG Grand Hotel National from April 1, 1904 with amortization plan

In a narrower sense of the word, only installment and annuity bonds are referred to as redemption bonds . They distinguish themselves from the standard bond in that the repayment amount is not paid in one amount at the end of the term, but in several, for example annual, installments.

The advantage for the debtor is that the bond can be repaid in several installments , comparable to an installment loan .

From the first partial repayment, the bond receives a pool factor smaller than 1, which indicates the ratio of the amount not yet redeemed to the nominal value that remains unchanged.

In the past, redemption bonds were also printed and numbered on paper . At that time, partial redemptions of this bond were usually determined by drawing lots for numbers or letters shortly before the redemption date - this is why such bonds are also known as drawing bonds . For example, as the first repayment, all bonds were drawn and paid back, the number of which had the final digit 5 ​​or the z. B. were marked with an "E"; all other loan pieces "ran" for the time being. These bonds had to be stored separately for each owner in wrapping paper (not in collective safe custody) so that the custodian bank knew whose customers whether and how many denominations were drawn or (partially) redeemed.

This form of the redemption bond - separate safekeeping, monitoring of the draw - required high administrative effort and costs and meant for the owner the uncertainty of when and how much will be redeemed. It is no longer in use today.

A special form, the balloon bond ( English bond balloon ) constitute in the Anglo-Saxon countries, like a balloon credit has a much higher rate than the previous circuit eradication rates.

example

A bond with a nominal value of € 100 was partially repaid with € 10. Even after this partial redemption, the nominal value of the bond remains at € 100, but with the addition of the pool factor 0.9. For the next interest period, only interest on 0.9 × 100 € = 90 € will be paid.

Value calculation

Example: On June 1, 2002, a bond with a coupon of 5 is issued. The coupon is payable on June 1st of each year. The bond is divided into five equal tranches A, B, C, D and E. The bond will be redeemed annually from June 1, 2008, with one of the tranches being drawn for repayment. The market interest rate is 4%.

First way

The calculated exchange rates for the individual terms are calculated as follows:

${\displaystyle P_{0}(2008)={\frac {5}{0{,}04}}+{\frac {100-{\frac {5}{0{,}04}}}{1{,}04^{6}}}=105{,}24}$

${\displaystyle P_{0}(2009)={\frac {5}{0{,}04}}+{\frac {100-{\frac {5}{0{,}04}}}{1{,}04^{7}}}=106{,}00}$

${\displaystyle P_{0}(2010)={\frac {5}{0{,}04}}+{\frac {100-{\frac {5}{0{,}04}}}{1{,}04^{8}}}=106{,}73}$

${\displaystyle P_{0}(2011)={\frac {5}{0{,}04}}+{\frac {100-{\frac {5}{0{,}04}}}{1{,}04^{9}}}=107{,}43}$

${\displaystyle P_{0}(2012)={\frac {5}{0{,}04}}+{\frac {100-{\frac {5}{0{,}04}}}{1{,}04^{10}}}=108{,}11}$

arithmetic mean = 106.70

Second way

${\displaystyle {\text{Durchschnittliche Laufzeit}}={\frac {6+7+8+9+10}{5}}=8}$

Evaluate the redemption bond as a standard bond with the average term:

${\displaystyle P_{0}(LZ=8)={\frac {5}{0{,}04}}+{\frac {100-{\frac {5}{0{,}04}}}{1{,}04^{8}}}=106{,}73}$

See also

• Mortgage Pass Through Security

Web links

• Entry in Gabler Wirtschaftslexikon.

Individual evidence

1. ↑ Karlheinz Müssing (ed.), Gabler Bank-Lexikon , 1988, column 791
2. ↑ Karlheinz Müssing (ed.), Gabler Bank Lexikon , 1988, col. 230