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For instance, a company issues a bond at an interest rate of 12 per cent.After 2 years, it finds it
can raise the same amount at 1o per cent. The company
can now exercise the call option and recall its debt obligation provided it hasdeclared so in the
offer document. Similarly, an investor can exercise his Putoption if interest rates have moved up
and there are better options available in
the market.
Market value of a bond depends on a host of factors such as its yield atmaturity, prevailing
interest rates, and rating of the issuing'entity. Price of abond will fall if intere'st rates rise and
vice-versa. A change in the credit rating of
the issuer can lead to a change in the market price.
1. 7. 3. 7 Mode of Holding Bonds
Bonds are most commonly held in form of physical certificates. Of late, somebond issues
provide the option of holding the instrument in demat form interestpajrment may also be
automatically credited to your bank account.
1. 7. 4 Investment In Equity & Preference Shares
Stock market is an investment opportunity that can offer both high risks andhigh returns. Capital
is the money required to run a business. When a businesswishes to expand or commercialize a
new product or service, it needs to raisecapital.
Capital can be raised in 2 ways
Equity capital represents ownership capital. Equity shareholders collectivelyown the company.
?hey bear the risk and enjoy the rewards of ownership. Thepotential rewards and the downsides
of equity shares make this an exciting,attractive and at the same time a risky proposition for
investment.
In financial markets, the stock capital or equity capital of a corporation or ajoint stock company
is the capital raised through the issuance, sale, and
distribution of shares. A person or organization that holds at least a partial shareof stock is
called a shareholder.