Lecture 1:

The Philippine Economy and the Role of Business

Philippines as a Promising Market

The Philippines has one of the fastest economic growth in the region in recent
years. The World Bank has identified the economy as one of the top growth performers
in East Asia, driven by strong exports, robust domestic consumption and infrastructure
expenditures. Moreover, the government's commitment to further increase public
infrastructure investment is expected to sustain the country's growth momentum,
reinforcing business and consumer confidence.

More reasons to invest and do business in the Philippines:

English-speaking High-skilled Manpower

The Filipino workforce has a unique edge over any other Asian country in terms
of labour quality. With a literacy rate of 94.6%, the Philippines has a ready and steady
supply of highly-skilled and trainable labour to accommodate any underlying business
need - including professional, technical, managerial and skilled workers. The main
competitive advantage of the Philippine workforce is the widespread proficiency in
English. English is taught in all schools, making the Philippines the third largest English-
speaking country in the world. 

Strategic Business Location

The Philippines, located in the heart of Asia, has emerged as an investment hub
and a favourable base for Asia-Pacific expansion programs. It is located within an
average 4 hours flying time from major capitals of the region and is a critical entry point
to over 500 million people in the ASEAN Market.

Sound Macro Economic Policies

The government has issued and implemented significant legislative reforms that
can help the Philippine economy to continue its growth.  Comprehensive tax reform
program, for instance ensures a steady revenue flow for the government’s aggressive
infrastructure program, while the lower personal income tax is expected to boost
consumer spending and spur economic activity. Meanwhile the Ease of Doing Business
Act hopes to further address bureaucratic red tape by improving the efficiency and
transparency of government procedures at all levels.

What Is a Business?

The term business refers to an organization or enterprising entity engaged in

commercial, industrial, or professional activities. The purpose of a business is to
organize some sort of economic production (of goods or services). Businesses can be
for-profit entities or non-profit organizations fulfilling a charitable mission or furthering a

By Prof. Mendoza, Hayvie

social cause. Businesses range in scale and scope from sole proprietorships to large,
international corporations.

Business also refers to the efforts and activities undertaken by individuals to

produce and sell goods and services for profit.

 A business is defined as an organization or enterprising entity engaged in

commercial, industrial, or professional activities.

 Businesses can be for-profit entities or non-profit organizations.

 Business types range from limited liability companies to sole proprietorships,

corporations, and partnerships.

 Some businesses run as small operations in a single industry while others are
large operations that spread across many industries around the world.

 Apple and Walmart are two examples of well-known, successful businesses.

Understanding Business

The term business often refers to an entity that operates for commercial,
industrial, or professional reasons. The concept begins with an idea and a name, and
extensive market research may be required to determine how feasible it is to turn the
idea into a business.

Businesses often require business plans before operations begin. A business

plan is a formal document that outlines the company's goals and objectives and lists the
strategies and plans to achieve these goals and objectives. Business plans are essential
when you want to borrow capital to begin operations.

Determining the legal structure of the business is an important factor to consider,

since business owners may need to secure permits and licenses and follow registration
requirements to begin legal operations.1 Corporations are considered to be juridical
persons in many countries, meaning that the business can own property, take on debt,
and be sued in court.

Most businesses operate to generate a profit, commonly called for-profit.

However, some businesses that have a goal to advance a certain cause without profit
are referred to as not-for-profit or nonprofit. These entities may operate as charities, arts,
culture, educational, and recreational enterprises, political and advocacy groups, or
social services organizations.

Business activities often include the sale and purchase of goods and services.
Business activity can take place anywhere, whether that's in a physical storefront, online,

By Prof. Mendoza, Hayvie

or on a roadside. Anyone who conducts business activity with financial earnings must
report this income to the Internal Revenue Service (IRS).

A company often defines its business by the industry in which it operates. For

example, the real estate business, advertising business, or mattress production business
are examples of industries. Business is a term often used to indicate transactions
regarding an underlying product or service. For example, ExxonMobil conducts its
business by providing oil.

Note: A good name is often one of the most valuable assets of a business, so it's
important that business owners choose their name wisely.

Business Types

There are many ways to organize a business, and there are various legal and
taxation structures that correspond with these. Among others, businesses are commonly
classified and generally structured as:

 Sole proprietorships: As the name suggests, a sole proprietorship is owned and

operated by a single person. There is no legal separation between the business
and the owner, which means the tax and legal liabilities of the business are the
responsibility of the owner.

 Partnerships: A partnership is a business relationship between two or more

people who together conduct business. Each partner contributes resources and
money to the business and shares in the profits and losses of the business. The
shared profits and losses are recorded on each partner's tax return.

 Corporations: A corporation is a business in which a group of people acts as a

single entity. Owners are commonly referred to as shareholders who exchange
consideration for the corporation's common stock. Incorporating a business
releases owners of the financial liability of business obligations. A corporation
comes with unfavorable taxation rules for the owners of the business.

 Limited liability companies (LLCs): This is a relatively new business structure

and was first available in Wyoming in 1977 and in other states in the 1990s.
A limited liability company combines the pass-through taxation benefits of a
partnership with the limited liability benefits of a corporation.

Business Sizes

 Small Businesses

Small owner-operated companies are called small businesses. Commonly

managed by one person or a small group of people with less than 100 employees, 9

By Prof. Mendoza, Hayvie

these companies include family restaurants, home-based companies, clothing, books,
and publishing companies, and small manufacturers. As of 2021, 32.5 million small
businesses with 61.2 million employees were operating in the United States.

The Small Business Administration (SBA) uses the number of employees

working at a company and its annual revenue to formally define a small business. For
229 industry sectors, from engineering and manufacturing to food service and real
estate, the SBA sets sizing standards every five years.

Businesses that meet the standards of the SBA can qualify for loans, grants,
and "small business set-asides," contracts where the federal government limits
competition to help small businesses compete for and win federal contracts.

 Mid-Sized Enterprises
There is no definitive specification in the U.S. to define a mid-sized or medium-sized
company. However, when large U.S. cities such as Philadelphia, Baltimore, and Boston
evaluate the landscape of operating businesses, a medium-sized company is defined
as one with 100 to 499 employees or $10 million to less than $50 million in
annual gross sales.

 Large Businesses
Large businesses commonly have more than 1000 employees and garner $50
million or more in gross receipts.13They may issue corporate stock to finance
operations as a publicly-traded company.

Large enterprises may be based in one country with international operations. They
are often organized by departments, such as human resources, finance, marketing,
sales, and research and development. Unlike small and mid-sized enterprises, owned
by a person or group of people, large organizations often separate their tax burden from
their owners, who usually do not manage their companies but instead, an elected board
of directors enacts most business decisions.

Examples of Well-Known Businesses

Apple
Apple is known for its innovative products, including its personal computers,
smart devices, and music and video streaming services.

Founded in 1977 by Steve Jobs and Steve Wozniak, Apple became the first
publicly-traded company whose value hit $1 trillion.14 The company's stock trades
under the ticker symbol AAPL on the Nasdaq. Intraday trading as of June 7, 2022,
hovered around $148 per share, while the market capitalization for the company hit
$2.41 trillion.

The company employs more than two million people, including 80,000
individuals who work as direct Apple employees. The remaining jobs include suppliers,
manufacturers, and others who are supported through the Apple store.16 The company
reported net sales of $297.3 billion in 2021, driven primarily by its product segment.

By Prof. Mendoza, Hayvie

 Apples key to success lies in its family of products and its ability to innovate.
The company focuses on design and quality—two key elements that were a key part of
Jobs' corporate vision. The products that Apple creates and markets can be used under
the same operating system, which allows consumers to sync them together, thus
lowering corporate costs. Apple's ability to create, develop, and market new products
and services also put it ahead of its competition.

Walmart
Walmart is one of the world's largest retailers and operates as a multinational
corporation. The company was founded in 1962 by Sam Walton in Arkansas.19 It has
more than 10,500 locations in more than 24 different countries and employs over 2.3
million people.2019

The company went public in 1970 and trades on the New York Stock Exchange
(NYSE) under the ticker symbol WMT. As of June 7, 2022, Walmart stock traded
around $123.37 per share and its market cap was $337.38 billion.

Walmart earned $559 billion in revenue for the full year of 2021. This figure was
driven by online sales through its e-commerce segment and international sales, which
were primarily recorded in Mexico and Canada.

Walmart's success can be attributed to several factors, including its brand name,
pricing, diversification (especially with the addition of its online marketplace),
efficient supply chain management, and its financial strength.

Reasons Why People Engage in Business?

1. To make profit

2. To provide goods and services

3. To dispose off surplus produce

4. To exploit individual talent

5. To keep oneself occupied and busy

What Is Sales Prospecting?

What is prospecting in sales and marketing?

Sales prospecting is the process of identifying and communicating with potential

customers to generate new business. Sales reps prospect by finding and engaging with
targets (qualified leads) to decide whether to move them through the sales funnel. 

Sales prospecting takes place on a one-to-one basis through outbound

activities. For example, when a sales development representative (SDR) makes a cold

By Prof. Mendoza, Hayvie

call, sends an email, or a direct message via LinkedIn. Prospecting in B2B
marketing involves tasks such as pay-per-click ads, content marketing, or newsletter.

Prospecting is usually a short-term approach that aims at:

 Starting a conversation

 Qualifying the prospect in or out 

 Positioning your product as a solution to their problem

What is a prospect, then?

In short, a prospect is synonymous with a prospective customer. But it doesn’t

mean any contact on your mailing list!

We can define prospects as qualified contacts who can enter the sales process
because they meet certain criteria outlined in your company's ideal customer profile.
For example, if you sell cyber security services to SMBs, your prospect is a manager in
a small or medium organization who can afford your solution and can make the
purchasing decision.

What is a good prospect, then?

To answer that, let’s can get a lot more granular about prospect definition and
differentiate between marketing and sales prospects—

Marketing prospects are people who can become leads. They are potential
customers who haven’t confirmed their interest in your product or service. For example,
they’ve only signed up for your email list.

On the other hand, sales prospects are lower in the sales funnel because they
have shown their intention to buy. They are ready to discuss the details of your solution
with sales development reps. They are usually considered good prospects because
they are aware of the need and more willing to communicate with sales reps.

What are the different types of sales prospecting?

Effective prospecting campaigns can vary by type of business and industry. For
example, SDRs sometimes prospect warm leads, that is people who have already
engaged with your brand somehow. While other organizations contact B2B sales
prospects for the first time—often via cold calls.

But there are some common ways in which you can find new prospects. If they
sound too familiar, scroll down for expert prospecting strategies.

1. On the phone 

By Prof. Mendoza, Hayvie

 Don’t listen to anyone who says cold calling doesn’t work anymore. It is still a
fast and effective sales prospecting technique, As many as 69% of customers accept
cold calls! It’s a huge opportunity for your business if done right. 

With the right skills and a direct phone number, an SDR can start a conversation
with a prospect and link their product to the prospect’s pain point and book meetings.
Our customers  use Cognism's verified mobile number data to increase connect
rate and enrich missing data points from inbound leads.

Where cold calling has an advantage over email is you get to show more of “the
human touch”. You can also have a meaningful conversation over the phone (rather
than a sales pitch). You ask questions, listen to the answers, and follow up.

2. Via email 

Sending sales emails is fast and one of the most cost-effective prospecting

ideas. Once you have an email template that works, you can prospect at scale. It can
also be a precursor to a phone call to add a more personal touch.

A useful email prospecting idea is to create email sequences that run your

prospect through your product's benefits, as opposed to features. You can use software
like Cognism Prospector to set up sequences that also monitor responses on the back
end.

3. On social channels

In B2B, all your leads are on LinkedIn. It’s simple to fire off direct messages on
LinkedIn to try and make a connection, although it can be hard to rise above the noise.

Many SDRs find success with these LinkedIn messaging templates or by

recording short videos for their prospects, which they send through LinkedIn.
Incorporating video prospecting allows you to inject a bit of personality into the process
and use information you find about your prospects on LinkedIn to add personalization.

If you prospect on LinkedIn, you can use Cognism Chrome Extension to export

your ICPs'  contact profiles enriched with email and phone to your CRM or sales
engagementtool.

What are sales prospecting techniques?

In most organizations, prospecting sits at the very start of the sales process. But
they can build prospecting processes differently. Whether you’re creating a new
prospecting plan or your current strategy needs updating, here are 10 actionable
sales prospecting techniques for creating a successful process.

1. Define the ideal customer profile (ICP)

By Prof. Mendoza, Hayvie

 You may be surprised how many sales leaders don’t create a profile of their
ideal target audience. And yet—ICP informs whether the person you are trying to reach
is likely to buy your product or not!

You can start defining an ideal customer based on their location, company size,
and budget. And then refine the profile every quarter once you learn more about your
prospects.

Once you know who fits your total addressable market, it will be easy to focus
your prospecting techniques on the right targets to save time and money. Targeted ICP
usually means better-qualified sales leads and higher conversion rates.

2. Do your research

Finding out as much as you can about your prospect before you make contact is
a crucial step in the strategic prospecting process. You need to be sure the person
you’re targeting is a good fit for your product or service. 

LinkedIn is ideal for this. All the information you could ever need is all there on
one screen. Evaluate it to make sure the prospect meets the criteria in your ICP. For
example, you can check if they are already using your competitor.

Don’t forget to look for ways you can make a connection with your prospect,
over and above trying to sell to them.

3. Understand the company’s internal structure

This is one of the key prospecting tactics in B2B prospecting that is often

overlooked. To increase your chances of closing the deal, you will have to reach out to
people in different layers of the company. It is useful to understand who is who and who
reports to who.

You can start prospecting to juniors and middle management to better

understand the company's pain points. It will help you tailor your sales pitch when you
speak to decision-makers at the top of the company's ladder. This prospecting tactic is
used in enterprise selling but may as well be used when prospecting to SMBs.

4. Define your goals before reaching out

Having a clear sales goal before starting prospecting in business helps you

prepare steps to achieve it. The goal doesn’t always have to be closing a deal, it can be
booking a meeting or scheduling a sales demo.

For example, if you’re reaching out to a cold prospect (someone who has never
heard of your company), your aim may be to build a relationship with them. Potential
customers want to be sure that the company they are doing business with is
trustworthy. They tend to trust organizations they have established a good relationship
with.

By Prof. Mendoza, Hayvie

5. Find out prospects’ pain points

During a discovery call, it’s important to ask the right questions to gather
information about the prospect's needs. Focus on learning what they are struggling with
and what is going well for them. You may ask if any metrics are fluctuating and what
effect it has on the team's performance.

When calling a business prospect, don’t try to reel off everything you can about
your product. Instead, listen actively to their answers and connect the dots to position
your product as the answer.

Thanks to sales prospecting methods like this, you can highlight the benefits of
your product rather than its generic features without sounding too pushy. 

6. Take advantage of sales triggers

Sales triggers are events that create an opening for contact with prospects, such
as a prospect’s promotion, a new round of funding, mergers, etc. The trick is to identify
them! But once you do, you can engage prospects better and ensure higher conversion
rates down the funnel.

So, how to prospect using sales triggers?

Well, you can track them manually but it will be time-consuming. It’s better to
use technology to do it for you. Our flagship tool, Prospector, has many event-based
triggers built into its platform.

7. Build your personal brand

Your potential buyers visit all types of social media channels, so if you’re not
present there, you’re losing out. It doesn’t replace other B2B sales prospecting activities
but complements them. As many as 82% of customers say they look up vendors on
lead sources like LinkedIn before even replying to their outreach.

You start by creating a social media profile and engaging with your connections
or followers. When you share valuable content with them, you increase your brand
awareness. People start to trust your expertise and become eager to hear your
recommendations.

8. Get support from all departments

When prospecting to large organizations, you will need to get a lot more
strategic. You may need to speak to different people in different departments, e.g.
RevOps, sales, and legal. The trick is to get them approved of your product before you
demonstrate it.

Use what you discover during your research phase to develop an outreach that’s
personalized to each team. By all means, use cold calling scripts and email templates
but don’t stick to them rigidly. Tailor your approach every time so that it is relevant.

By Prof. Mendoza, Hayvie

9. Be active

Prepare that not every conversation with prospects will have a desirable result
for you. According to Gartner’s research, it may take 18 dials to connect with the buyer!
That’s why you should have as many conversations as possible. There is no shortage
of information you can discover. From the main decision-makers to the tools they are
currently using, to what issues they have with them.

It is especially important if you’re reaching out to enterprises. The best

prospecting strategy, in that case, is to contact junior employees en masse. All you
need is to get one or two of them to respond.

10. Evaluate your results

This is a crucial step in the sales prospecting process because it tells you which
tactics give you the best results. You will be able to focus on those that are the most
profitable and find areas for improvement.

Analyzing results helps you understand what makes prospects convert and
redefine your ICP quarterly. You can also evaluate every interaction with prospective
customers and think of what went right, and what went wrong.

Top tips for targeted prospecting 

Even if you use the best prospecting techniques and strategies, you may find
the process challenging. Some of the biggest prospecting issues sales reps face are
lack of time, connecting with the wrong people, and not enough research to personalize
pitches.

Here are some of the best practices in sales prospecting for getting more hot leads:

1. Start small 

Many sales professionals start with a large list of prospects, dwindling it down to
a small list of actual buyers. But one of the best sales prospecting tips you will ever
hear is to start with smaller lists of better-qualified prospects. Armed with accurate B2B
data, you can create lists of potential buyers. 

So instead of a list of 1,000 prospects that generate only 30 buyers, have a list
of 300 people and have 200 of them make the purchase. 

2. Follow up with relevant content

When some sales fall through it could be due to the type of content you’re
sending. Sales prospecting best practice is to tailor business proposals to the recipient.
It means addressing your customers’ pain points right in the intro to hook them up. You
can also create a prospecting cadence to better maximize engagement and hit targets.

3. Know when to stop pursuing prospects

By Prof. Mendoza, Hayvie

 This might not sound like the best sales prospecting tip at first. Some sales reps
still consider disqualifying prospects a step back. But it is a breakthrough. If you notice
that a prospect isn’t a good fit, you will be able to focus your attention on opportunities
that have better potential to convert. 

It doesn’t mean just walking away from a prospective customer when they
haven’t replied to your email—that’s another reason for a prospecting cadence!
Prospecting also means setting criteria for not pursuing a lead. It’s a win-win situation
for everyone involved.

4. Update ICP every quarter

Sometimes, sales prospecting is not working because you don’t update your
ideal customer profile. For example, you may identify SMBs as your potential buyers.
With time, however, it may turn out that solopreneurs bring more value to your
business. 

The best way to improve prospecting is to collect and analyze qualitative and
quantitative data. You may for example calculate customer lifetime value or speak to
the customer support team. They know exactly who is actually purchasing and which
customers are most loyal to your product or service.

5. Plan your calls

Planning your calls is important for two reasons. Firstly, it helps you better
engage the decision-maker. Secondly, it reduces any anxiety you may feel before you
pick up the phone. You can use a cold calling script if you don’t have much experience
in prospecting.

Planning what you’re going to say is easier if you assume the prospects you’re
calling have similar goals and challenges as your existing customers. To make better
assumptions about your prospective buyers, you can join industry associations, sign up
for their newsletters, and join their LinkedIn groups. 

Who does prospecting in sales?

In most SaaS sales teams, prospecting is carried out by Sales Development

Reps (SDRs), sometimes called Business Development Reps (BDRs).

SDRs are often the newest members of the sales team, building their skills and
experience before becoming Business Development Managers (BDMs, also called
Account Executives or AEs), who negotiate with prospective clients and close deals.

SDRs typically communicate with hundreds of prospects every day, ensuring that
the leads that move to the next stage of the process meet the following criteria:

 Budget—they have the money to buy

By Prof. Mendoza, Hayvie

  Authority—they are the proper decision-maker

 Need—they have a problem that the product can solve

 Time—they are looking to make a purchasing decision quickly

How to measure their success?

Every organization will focus on slightly different sales prospecting metrics for

SDRs, but here are some ways you can measure your outbound prospecting success:

 Activity metrics—dials per day, emails per day, time on the phone.

 Result-based metrics—number of Sales Qualified Leads (SQLs) generated,

number of AE meetings booked, number of meetings booked that take place.

By Prof. Mendoza, Hayvie

i

Importance of Prospecting
Prospecting the important process of locating potential customers for a product or service, is critical
whether you are new or seasoned sales professional.

Characteristic of a Good Prospect

 Prospect actually begins with locating a lead, a person or an organization that may or may not
have what it takes to be true prospect.
 Some people mistakenly consider every lead a prospect without first taking the time to see
whether these people really provide an opportunity to make a sale.

Can the lead be approached favorably?

some leads with a need, the ability to pay, and the authority to buy may still not qualify as prospects
because they are not accessible to the salesperson.

Is the lead eligible to buy?

Eligibility is an equally important factor in finding a genuine prospect.

How and where to Obtain prospect?

Prospecting sources and methods vary for different types of selling.

Satisfy Customer
particularly those who are truly partners with the seller, are the most effective source of lead. Satisfy
customers not only provide leads but also are usually prospects for additional sales.

Endless-Chain Method
sales representatives attempt to get at least one addition lead from each person they interview.
Referral lead, the name of a lead provided by either customer or a prospect and its generally
considered the most successful lead.

Networking
the utilization of personal relationship by connected and cooperating individuals for the purpose of
achieving goals. Networking crucial in many selling situation.

Center-influence method
salesperson cultivates a relationship with well-know, influential people in the territory who are willing to
supply the names of leads.

The Internet
successful salespeople are using Web sites, e- mail, listservs, bulletin boards, forums, roundtables
and newsgroups to connect to individuals and companies that may be interested on their
products/services.
Banner advertising consist of ads placed at the top, sides or bottom of a web page, encouraging the
viewer to visit a different web site.

ADS, DIRECT MAIL, CATALOGS, AND PUBLICITY

Firms have developed sophisticated system to generate inquiries from leads by using
advertising and direct mail. The firms also places advertisements in trade

publications, such as presentations.

Shows, fairs and merchandise markets

Many companies display or demonstrate their products at trade shows, conventions, fairs and
merchandise markets. Sales representative are present to demonstrate products to visitors, many
whim salespeople have not called on before.
Merchandise markets are places where suppliers have sales officers and buyers from resellers visit to
purchase merchandise."

Lists and Directories

Individual sales representatives can develop list from sources such as public records, telephone
directories, chamber of commerce directories, newspaper trade publications, club membership lists
and professional or trade membership lists.

Cold calling
In using the cold canvass method or cold call a sales representative ties to generate leads for new
business by calling on totally unfamiliar organization.

Spotter
■ Some salespeople use spotter, also called bird dogs, these individuals will, for a fee provide leads
for salesperson.

The telemarketing
Telemarketing is a systematic in continuous program of communicating with customers and prospects
via telephone.
Telemarketing is not limited to consumer sales.

Lead qualification and manage systems

salespeople need to develop a process for qualifying leads, often called a lead qualification system.
Many firms view prospecting as a funnelling process in. Which a large number of leads a funned into
prospects and some finally into costumers.

FINALS!!!!

BONDS

 a bond is an instrument of indebtedness of the bond issuer to the holders.

 It is a debt security, under which the issuer owes the holders a debt and, depending on the terms
of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later
date, termed the maturity

 Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly). Thus a
bond is a form of loan or IOU: the holder of the

 bond is the lender (creditor), the issuer of the bond is the borrower (debtor), and the coupon is the
interest. Bonds provide the borrower with external funds to finance long-term investments, or, in
the case of government bonds, to finance current expenditure.

COMPARISON WITH EQUITY

• Bonds and stocks are both securities, but the major difference between the two is that (capital)
stockholders have an equity stake in the company (i.e. they are owners), whereas bondholders have a
creditor stake in the company (i.e. they are lenders).

Another difference is that bonds usually have a defined term, or maturity, after which the bond is
redeemed, whereas stocks may be outstanding indefinitely. An exception is an irredeemable bond,
such as Consols, which is a perpetuity, i.e. a bond with no maturity

DEBENTURES

A debenture is a document that either creates a debt or acknowledges it, and it is a debt without
collateral. In corporate finance, the term is used for a medium- to long-

term debt instrument used by large companies to borrow money.

In some countries the term is used interchangeably

with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing
the fact that the company is liable to pay a specified amount with interest and although the money
raised by the debentures becomes a part of the company's capital structure, it does not become share
capital.

Debentures are generally freely transferable by the debenture holder. Debenture holders have no
rights to vote in the company's general meetings of shareholders, but they may have separate
meetings or votes

e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against
profit in the company's financial statements

BONDS

-It is a debt security, under which the issuer owes the holders a debt and, depending on the terms of
the bond, is obliged to pay them interest (the coupon) and/or to repay the principal at a later date,
termed the maturity.

Interest is usually payable at fixed intervals (semiannual, annual, sometimes monthly).

FEATURES OF A BOND

Principal

Nominal, principal, par or face amount - the amount on which the issuer pays interest, and which,
most commonly, has to be repaid at the end of the term

Maturity

The issuer has to repay the nominal amount on the maturitydate. As long as all due payments have
been made, the issuer has no further obligations to the bond holders after the maturity date. The
length of time until the maturity date is often referred to as the term or tenor or maturity of a bond.
Coupon

The coupon is the interest rate that the issuer pays to the bond holders. Usually this rate is fixed
throughout the life of the bond. Interest can be paid at different frequencies: generally semi-annual, i.e.
every 6 months, or annual

Yield

The yield is the rate of return received from investing in the bond

TYPES OF BOND

1. Zero-Coupon Bonds:

This is a type of bond that makes no coupon payments but instead is issued at a considerable
discount to par value. For example, let's say a zero-coupon bond with a $1,000 par value and 10
years to maturity is trading at $600; you'd be paying $600 today for a bond that will worth $1,000 in 10
years. The issue price of Zero Coupon Bonds is inversely related to their

maturity period, i.e. longer the maturity period lesser would be the issue

price and vice-versa. These types of bonds are also known as Deep

Discount Bonds.

2. High-Yield Bonds:

High yield (non-investment grade) bonds are from issuers that are considered to be at greater risk of
not paying interest and/or returning principal at maturity. As a result, the issuer will offer a higher yield
than a similar bond of a higher credit rating and, typically, a higher coupon rate to entice investors to
take on the added risk.

3. Corporate Bonds:

These are issued by large corporations and have higher yields because there is a higher risk of a
company defaulting as compared to government bonds.

4. Government Bonds:

These are the bonds issued by government in its own currency. They are usually referred to as risk-
free bonds. Bonds issued by national governments

in foreign currencies are referred to as sovereign bonds.

5. Convertible Bonds:

The holder of a convertible bond has the option to convert the bond into equity (in the same value as
of the bond) of the issuing firm (borrowing firm) on pre-specified terms. Convertible bonds may be fully
or partly convertible. For the part of the
convertible bond which is redeemed, the investor receives equity shares and the non-converted part
remains as a bond.

6. Inflation-indexed (or inflation-linked) Bond:

It provides protection against inflation, and is designed to cut out the inflation risk of an investment.

7. Extendible and Retractable Bonds:

Extendible and Retractable bonds have no fixed maturity date. While the maturity period of extendible
bonds can be extended on the demand of the buyer of these bonds, the maturity period of retractable
bond can be reduced and the principal amount returned to the buyer if he feels so.

8. Floating Rate Bonds:

Floating Rate Notes are bonds in which interest rate depends on the interest rate prevailing in the
market. The interest rate paid to the bondholder at regular intervals comprises of the interest rate
prevailing in the market and 'spread', which is a rate that is fixed when the prices of the bond are being
fixed and it remains constant till the maturity period of the bond.

9. Perpetual Bonds:

Perpetual Bonds, which are also known as the name of Consol, are the bonds which have no maturity
period and keep on paying interest to the investors regularly. The issuer of Perpetual Bonds is not
required to redeem these bonds. They are generally treated as equity and not as loan / debt.

Some other Types of bonds:

 Asset Backed Securities

 subordinated bonds
 Bearer Bonds
 Municipal Bonds
 Lottery Bonds
 War Bonds

TYPES OF DEBENTURES

1. SECURITY
 Secured/ Mortgage
 Unsecured

2. REDEMPTION
 Redeemable
 Irredeemable

3. RECORDS
 Registered
 Bearer

4. CONVERTIBILITY
 Convertible
 Non-convertible

5. PRIORITY
 First
 Second

ADVANTAGES OF DEBENTURES/BOND S

Investors consider debentures/bonds as a relatively less risky investment, therefore it requires a lower
rate of return.

Interest payments are tax deductible.

The floatation costs on debentures/bonds is usually lower than floatation costs on common shares

• No voting rights therefore no dilution of ownership.

Debenture/bomd holders do not participate in extraordinary earnings of the company. Thus their
payments are limited to interest.

During periods of high inflation, debenture/bond issue benefits the company. Its obligations of paying
interest and principal, which remain fixed, decline in real terms.

DISADVANTAGE OF DEBENTURES/BOND S

• Their issue results in legal obligation of paying interest and principal, which, if not paid can force the
company into liquidation.

Their issue increases the firm's financial leverage and reduces its ability to borrow in future.

They must be paid at maturity and therefore at some point, it involves substantial cash outflows.

They may contain restrictive covenants which may limit the firm's operating flexibility in future.