Equal Value

Most of the debentures are issued with a nominal value of 1,000 dollars and it if the debenture is sold at that same price, it in then said that it is being sold at is equal value.

On the debenture charts in the financial newspapers, a debenture of 1,000 that is sold at its equal value appears as 100, that is, 100% of its nominal value. One that is sold at 1,200 dollars (that is, with a prime above equal), it would appear a 120. Another that is sold at 780 dollars (under equal that is, with a discount) would appear on the charts as 78. While the fraction part of the price is expressed in one thirty second that of the debentures is expressed in eighths, this, however, will change by the year 2000 when the decimal system will be adopted.

The bonds and debentures issued by the federal government are traded in a similar way, and the fractional part of their price is expressed in one thirty second. For example, a government debenture that appears on the lists at 80, 12 are really 80 12/32, which traduced in eighths would be 80 3/8, or, 803.75 dollars.

Qualification
The debentures receive qualifications assigned by entities such as the Moody and the Standard & Poor’s. The qualification given to a determine debenture may have a crucial influence in its selling price and in its negotiability.

The qualification of “AQQ” is the highest that the Moody’s gives and it indicates that the issuing company of that debenture has an extremely strong capacity for paying the principal of the loan and the interests. On the other extreme we find that if the Moody’s qualifies a debenture as a “D”, it is sign that the issuer has not fulfill the payments of the principal, the interests or both.

The scale used by Standard & Poor’s is similar, and both services usually follow each other.

Qualifications are important because few investors have the time or capacity to arrive to their own conclusions about the solvency of the company and its capacity to fulfill their financial obligations. The investors apply to professional qualifying entities to obtain this information.

Furthermore, many big investors, mainly of pension funds and of fiduciary departments of banks, are prohibited by the law or by internal norms to invest in debentures whose qualifications are below the “A” category. Many debenture mutual funds are willing to invest in categories of up to “BB” and there also Exists an identical disposition for investing in worst qualified debentures, those that are included in a category known as “trash bonds” or of “High yields”. The low qualification debentures are mostly margined by a great number of investors.

It’s well to emphasize that these qualification services are paid in quotes by the debenture issuers, for which many small issuers resign the toe qualification to avoid further expenses.