research report on bonds of pia

8/7/2019 Research Report on Bonds of PIA

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Research on Bonds Grou

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RESEARCH REPORT

On BONDS OF PIA

Presented To:

Sir Riaz Hussain Ansari

Presented By:

Group No. 5

Muhammad Irfan MBS-09-23

Asima Shrafat MBS-09-19

Ya

sm

een Sha

rifM

BS-09-24

Department of Business Administration

Bahauddin Zakariya University

Sahiwal Campus


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EXECUTIVE SUMMARY

A bond is a long term contract under which a borrower agrees to make payments of

interest and principal, on specific dates, to the holders of bonds. There are many types of bonds

according to issue and investment. Each type differs according to return and degree of risk.

Governments issue bonds in very large quantity and in different types. We conducts research on

bonds and make literature survey by using different articles and books. First we discus the basic

concepts related to bonds in our report and then add selected literature related to our topic. After

that we discuss corporate bond market and its market in Pakistan as compared to international

market. Then we mention the total local currency bond market and its percentage of GDP in

local currency. The corporate bond market in Pakistan is very short and we give some examples

of companies and organizations that issue bonds. PIA solely has 50% share in total corporate

bond market so we select it for our research. We discuss the different aspects of raising finance

through bonds and stocks and then conclude that bonds are better for PIA. Then we show the

impact long term debts on the MPS of PIA. Regression test is applied to check the relationship

of these two dependent and independent variables. We assume that profitability position of PIA

remains the same and no sudden change in the demand and supply of the shares. Then we

conclude that when long term debts increased MPS decreased and it has strong negative

relationship.


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INTRODUCTION

What is bond?

Abond is a security instrument which acknowledges that the issuer has borrowed money

and must repay it to the bondholder at a specified rate of interest over a predetermined period of

time. These securities are referred to as debt obligations, contrasted withstocks, which represent

ownership in a corporation.

Features of Bond

Face value or par value, The amount on which the issuer pays interest, and which, most

commonly, has to be repaid at the end of the term.

Issue price, The price at which investors buy the bonds when they are first issued, which

will typically be approximately equal to the nominal amount.

Maturity date, The date on which the issuer has to repay the nominal amount. As long as

all payments have been made, the issuer has no more 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 interest rate that the issuer pays to the bond holders. Usually this rate is

fixed throughout the life of the bond. The name coupon originates from the fact that in the past,

physical bonds were issued which coupons had attached to them. On coupon dates the bond

holder would give the coupon to a bank in exchange for the interest payment.

Coupon dates, The dates on which the issuer pays the coupon to the bond holders. In the

U.S. and also in the U.K. and Europe, most bonds are semi-annual, which means that they pay a

coupon every six months.

Callability, Some bonds give the issuer the right to repay the bond before the maturity

date on the call dates. These bonds are referred to as callable bonds. Most callable bonds allow


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the issuer to repay the bond at par. With some bonds, the issuer has to pay a premium, the so

called call premium.

Convertible bond, These bonds let a bondholder exchange a bond to a number of shares

of the issuer's common stock at a fix price. Convertible bonds have lower coupon rate than non

convertibles.

Exchangeable bond, These bonds allows for exchange to shares of a corporation other

than the issuer.

Income bonds, Bonds that pays interest only if the interest is earned. These bonds are

more risky than regular bonds.

Types of Bonds

Fixed rate bonds have a coupon that remains constant throughout the life of the bond.

Floating rate notes (FRNs) have a variable coupon that is linked to a reference rate of

interest prevailing in the country.

Zero-coupon bonds pay no regular interest. They are issued at a substantial discount

to par value, so that the interest is effectively rolled up to maturity (and usually taxed as such).

The bondholder receives the full principal amount on the redemption date.

Asset-backed securities are bonds whose interest and principal payments are backed by

underlying cash flows from other assets. Examples of asset-backed securities are mortgage-

backed securities (MBS's), collateralized mortgage obligations (CMOs) and collateralized debt

obligations (CDOs).

Subordinated bonds are those that have a lower priority than other bonds of the issuer in

case of liquidation. In case of bankruptcy, there is a hierarchy of creditors. First the liquidator is

paid, then government taxes, etc.


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Bearer bond is an official certificate issued without a named holder. In other words, the

person who has the paper certificate can claim the value of the bond. Often they are registered by

a number to prevent counterfeiting, but may be traded like cash. Bearer bonds are very risky

because they can be lost or stolen.

Foreign currency bonds Some companies, banks, governments, and other sovereign

entities may decide to issue bonds in foreign currencies as it may appear to be more stable and

predictable than their domestic currency. These bonds are called international bonds.

Issuers of Bonds

Government

When the government wishes to borrow money for more than one year, it sells bonds to the

general public. The bonds issued by government are following two types,

Treasury Bonds

Treasury bonds are just coupon bonds issued by the federal government. It is

reasonable to assume that the federal government will make good on its promised

payments, so these bonds have no default risk. However prices of these bonds aredecline when interest rates rise so they are not free of all risks.

Municipal Bonds

These bonds are also called munis are issued by local or state governments. Like

corporate bonds, munis have default risk. The major advantages of these bonds are that the

interest earned on these bonds is exempt from federal taxes. But the interest rates of these

bonds are lower than the corporate bonds.

Corporations

Corporation issue bonds called corporate bonds. Unlike treasury bonds corporate bonds are

expected to default risk. If the issuing company gets into trouble, it may be unable make the


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promised interest and principal payments. Default risk often is referred to as credit risk, and the

larger the credit or default risk the higher the interest rate the issuer company must pay.

OBJECTIVES AND BENEFITS OF RESEARCH

There will be a number of benefits and objectives of our research study

Objectives of the research

1. To create basic knowledge about the bonds.

2. To show the importance of bonds in financing.

3. To elaborate the risk factors with the bonds.

4. Financial benefits or difficulties of issuing bonds.

5. Bonds or bank loans are more appropriate.

6. To explain the importance of bonds over share capital.

7. Rating of bonds and default risk.

8. Effects of inflations on bonds.

Benefits of research

We will see the benefits in two ways, benefits to the society and benefits of the

organizations.

Benefits to the society

1. It will provide help how to invest in bonds.

2. Information about the different types of bonds existing in market.

Benefits to the organization

1. Help the organizations how to raise finance through bonds

Information about the extent of success to raise of finance through bonds.


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LITERATURE REVIEW

In finance, a bond is a debt security, in which the authorized issuer owes the holders a

debt and, depending on the terms of the bond, is obliged to pay interest and/or to repay theprincipal at a later date, termed maturity. A bond is a formal contract to repay borrowed money

with interest at fixed intervals. Bonds must be repaid at fixed intervals over a period of time.

Bonds and stocks are both securities, but the (capital) stockholders have an equity stake in the

company or owners, whereas bondholders have a creditor stake in the company or lenders.

Bonds usually have a defined term, or maturity, after which the bond is redeemed, whereas

stocks may be outstanding indefinitely except consol bond which is a perpetuity having no

maturity. The interest rate paid by issuer is influenced by a variety of factors, such as current

market interest rates, the length of the term and the creditworthiness of the issuer.

The market price of a bond will vary after it is issued due to change in these factors over

time. This price is expressed as a percentage of nominal value. Bonds are not necessarily issued

at par, but bond prices converge to par if maturity payment to be made in full and on time. This

is referred to as Pull to Par. At other times, prices can be above par which is called trading at a

premium, or below par which is called trading at a discount. The market price of a bond is the

present value of all expected future interest and principal payments of the bond discounted at the

bonds rate of return. The yield and price of a bond are inversely related so that when market

interest rates rise, bond prices fall and vice versa. The market price of a bond may include the

accrued interest since the last coupon date.

Some bond markets include accrued interest in the trading price and others add it on

explicitly after trading. The price including accrued interest is known as the full or dirty

price. The price excluding accrued interest is known as the flat or clean price. Bonds are

bought and traded mostly by institutions like central banks, pension funds, insurance companies

and banks. Most individuals who want to own bonds do so through bond funds. In the U.S.

nearly 10% of all bonds outstanding are held directly by households. Sometimes, bond markets

rise when stock markets fall, the volatility of bonds is lower than that of stocks. Thus bonds are

generally viewed as safer investments than stocks. As bonds do suffer from less day-to-day

volatility than stocks so, its interest payments are often higher than dividend payments.

Bondholders also enjoy a measure of legal protection, under the law of most countries, if a


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company goes bankrupt, its bondholders will often receive some money back, whereas the

companys stock often ends up valueless. However, bonds can also be risky but less than stocks.

(Sheffrin, Steven M. 2003)

Companies can expand their businesses through raising cash in two ways. One is by

going public and diluting their ownership of the company to investors who would all pay a

morsel (share price) and claim ownership called stocks. Another way of raising money is the age

old method of borrowing called bonds. So typically, a bond is nothing but a loan that investors

hand out to companies or the government itself. The loan is paid back to an investorwithin a

scheduled time and at a specific, pre-determined coupon interest rate. If the bonds coupon rate is

divided by its current price, the investors would get the Current Yield which is effectively the

money you would earn if you purchase the bond on that day. Bonds are considered safer to invest

because investors always know how much they are owed exactly, less risky, more stable and

hence they pay less compared to stocks. They are often called as fixed-income securities or debt-

market instruments to reflect on the fact that they are predictable, more stable, pay less but dont

fluctuate wildly. (Ashwin Satyanarayana, Jun 23, 2010)

Investors often view bonds as the less risky then stocks, which is another major

difference between stocks and bonds. Bondholders are creditors for the company and

stockholders own a share in the company. It means if a company falls into financial trouble and

ends up having to file for bankruptcy, it sells off its assets in order to pay back its creditors,

which includes bondholders. In the same scenario, common stockholders arent entitled to any of

the proceeds from the sale of assets after bankruptcy. Preferred shareholders, however, may be

entitled to a portion of the proceeds from the sale of assets after bankruptcy, but usually only

after the company pays its creditors and bondholders. (Sue Lynn Carty)

In case of bonds, investors know the maximum payout it can generate. Stocks, on the

other hand, have infinite earning potential and the investors profits will grow along with the

success of the company issuing the stock. Another big difference between stocks and bonds is

the amount of work required on your part. Once a bond is purchased, the investor can simply

relax and wait for their money to return. By contrast, stocks are active investments and require


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monitoring. Successful stock investors spend a lot of time and energy watching the market for

trends and buying and selling stocks. (Limo wreck)

Common stocks and bonds are traded on exchanges where brokers take orders to sell

from owners and orders to buy from prospective owners. Stock and bond prices can vary

constantly based on what buyers and sellers are willing to agree is a good price.

Different factors ranging from regular profit reports, changing government regulation and rumors

or gossip can affect a stock or bond price. Companies that make money but not what was

expected (projected earnings) can see the stock price go down. A company that posts a loss but is

able to meet all its outstanding debt obligations can see its bond price

go up. (Wesley Tucker, 2010)

Trading in bonds seems to be quite popular among investors as they are generally taken

as a more reliable investment than stocks. There is sum-assured component in bonds which is

absent in stocks. Bonds usually accrue interests like a saving account, which is payable quarterly,

half yearly, or annually. This may make one conclude that bonds are better investment than

stocks. A stock investment market will never promise any interest or for that matter any promise

of positive earning at all. Bonds are often convertible in to equity shares. Like in stocks, there are

many varieties of bonds. Bonds varieties refer to the rates of interest, distance of repayment

terminal time and nature of conversion ratios, while stocks vary according to the size and

probable income potential, which have to be calculated by the investors himself. The main

demerit of bonds as compare to stocks is that a bond can never earn more than its face value,

while a prosperous stock can earn large multiples of its face value. (Ezilon.com, 2006)

Bonds move in the opposite direction of interest rates. When rates rise, bonds fall and

vice versa. If you buy a bond and hold it until it matures, swings in interest rates and the

resulting swings in the bonds price wont matter. But if you sell your bond before it matures, the

price it fetches will be largely related to the interest rate environment. Bonds are more

complicated than stocks. Whereas stocks come in only a handful of varieties and are offered only

by public corporations, bonds are sold by corporations, the federal government, government-

sponsored agencies, cities, states and other public authorities. Bonds also come in nearly endless


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varieties from short-term notes to bonds that take 30 years to mature. The key to understanding

the bond market lies in understanding a financial concept called a yield curve, which is a

graphical representation of the relationship between the interest rate that a bond pays and when

that bond matures. Once you learn to read curves (and calculate the spread between curves), you

can make informed comparisons between bond issues. (Paul Conley)

The bond market (also known as the debt, credit, or fixed income market) is a financial

market where participants buy and sell debt securities, usually in the form of bonds. Nearly all of

the $822 billion average daily trading volume in the U.S. bond market takes place between

broker-dealers and large institutions in a decentralized, over-the-counter (OTC) market.

However, a small number of bonds, primarily corporate, are listed on exchanges.

The Securities Industry and Financial Markets Association (SIFMA) classify the broader

bond market into five specific bond markets. These are Corporate, Government & agency,

Municipal, Mortgage backed, asset backed, Funding.

Bond market participants are similar to participants in most financial markets and are

essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both.

Participants include Institutional investors, Governments Traders and Individuals.

Because of the specificity of individual bond issues, and the lack of liquidity in many

smaller issues, the majority of outstanding bonds are held by institutions like pension funds,

banks and mutual funds.

Amounts outstanding on the global bond market increased 10% in 2009 to a record $91

trillion. Domestic bonds accounted for 70% of the total and international bonds for the

remainder. The US was the largest market with 39% of the total followed by Japan (18%).

Mortgage-backed bonds accounted for around a quarter of outstanding bonds in the US in 2009

or some $9.2 trillion. The sub-prime portion of this market is variously estimated at between

$500bn and $1.4 trillion. Treasury bonds and corporate bonds each accounted for a fifth of US

domestic bonds. In Europe, public sector debt is substantial in Italy (93% of GDP), Belgium


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(63%) and France (63%). Concerns about the ability of some countries to continue to finance

their debt came to the forefront in late 2009.

This was partly a result of large debt taken on by some governments to reverse the

economic downturn and finance bank bailouts. The outstanding value of international bonds is

increased by 13% in 2009 to $27 trillion. The $2.3 trillion issued during the year was down 4%

on the 2008 total, with activity declining in the second half of the year.

For market participants who own a bond, collect the coupon and hold it to maturity, market

volatility is irrelevant; principal and interest are received according to a pre-determined schedule.

But participants who buy and sell bonds before maturity are exposed to many risks, most

importantly changes in interest rates. When interest rates increase, the value of existing bonds

falls, since new issues pay a higher yield. Likewise, when interest rates decrease the value of

existing bonds rise since new issues pay a lower yield. This is the fundamental concept of bond

market volatility, changes in bond prices are inverse to changes in interest rates. Fluctuating

interest rates are part of a country's monetary policy and bond market volatility is a response to

expected monetary policy and economic changes. Bond markets determine the price in terms of

yield that a borrower must pay in able to receive funding. (Eason, Yla, 1983)

Why do bonds & stocks have a low correlation? That Stocks and bonds often but not

always have low correlation. This is due to the effect of interest rates on bonds and to the fact

that bonds have inherently lower risk than stocks. Government bonds contribute to low

stock/bond correlation, because governments are under a different set of rules and pressures than

bond-issuing companies. Correlation measures direction and magnitude of price movement. Low

correlation means that a price increase in stocks goes with price decrease in bonds (and vice

versa) or that prices move in the same direction, but to different extents. Higher interest rates

correspond to higher yield and lower bond price. Stocks don't respond to interest rate changes in

same manner as bonds, so there's little correlation between stock and bond value with respect to

interest rates. Bonds have lower risk than stocks.

In addition, stocks have more volatility, meaning they go up and down more steeply. As

a result, bonds often are seen as a safer investment. Bonds can be issued by governments. This

non-corporate infusion of government bonds affects overall bond behavior and contributes to low


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correlation between stocks and bonds. Past low correlations doesn't necessarily predict the

future. For example, during the 2008-2009 recessions, there was relatively high correlation

between stocks and bonds. (Stan Aberdeen, 2010)

Researched on why companies issue convertible bondsconcluded that there are pros and

cons to the use of convertible bonds as a means of financing by corporations. This method of

delayed equity financing gives several advantages to the corporation. One is a delayed dilution of

common stock and earnings per share (EPS). Another is that the company is able to offer the

bond at a lower coupon rate - less than it would have to pay on a straight bond. Regardless of

how profitable the company is, convertible bondholders receive only a fixed, limited income

until conversion. This is an advantage for the company because more of the operating income is

available for the common stockholders. The company only has to share operating income with

the newly converted shareholders if it does well. Thus, when a company is considering

alternative means of financing, if the existing management group is concerned about losing

voting control of the business, then selling convertible bonds will provide an advantage, maybe

only temporarily, over financing with common stock. Companies with poor credit ratings often

issue convertibles in order to lower the yield necessary to sell their debt securities. The investor

should be aware that some financially weak companies will issue convertibles just to reduce their

costs of financing, with no intention of the issue ever being converted.

As a general rule, the stronger the company, the lower the preferred yield relative to its

bond yield. There are also corporations with weak credit rating that also have great potential for

growth. Such companies will be able to sell convertible debt issues at a near-normal cost, not

because of the quality of the bond but because of the attractiveness of the conversion feature for

this "growth" stock. When money is tight and stock prices are growing, even very credit worthy

companies issuing convertible securities in an effort to reduce their cost of obtaining scarce

capital. There are some disadvantages for issuers, too. One is that financing with convertible

securities runs the risk of diluting not only the EPS of its common stock, but also the control of

the company. If a large part of the issue is purchased by one buyer, typically an investment

banker or insurance company, conversion may shift the voting control of the company away

from its original owners and toward the converters.

This potential is not a significant problem for large companies with millions of


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stockholders, but it is a very real consideration for the small company, or one just going public.

The decision to issue new equity, convertible and fixed-income securities to raise capital funds is

governed by a number of factors. One is the availability of internally generated funds relative to

total financing needs. Such availability, in turn, is a function of a company's profitability and

dividend policy. Used wisely; a policy of selling differentiated securities (including convertible

bonds) to take advantage of market conditions can lower a company's overall cost of capital

below what it would be if it issued only one class of debt and common stock. However, there are

pros and cons to the use of convertible bonds for financing; investors should consider what the

issue means from a corporate standpoint before buying it. (Richard Cloutier, 2008)

10 reasons fixed income still makes sense today. There are many reasons to stick with

fixed income. Bonds provide diversification against stock investment. Bonds have steady

income; most bonds will pay scheduled coupon payments before returning your principal at

maturity. Bonds have largely recovered markets as these have par or face value than those of

stocks even in depression. High quality bonds have stabilized portfolio performance especially

when stock markets have fastest fall. Interest rates are not rise soon. Diversification helps to

manage interest rate and credit risk. We can diversify our investment easily through bonds

because there are long term and short term bonds. A diversified product allows you to target how

much risk you want to take, and target average bond maturities as well. (Rob Williams, 2009)

Choosing the right mix of stocks and bonds can be one of the most basic yet confusing

decisions facing any investor. In general, the role of stocks is to provide long-term growth

potential and the role of bonds is to provide an income stream. The question is how these

qualities fit into your investment strategy. When an investor buys shares of stock; he or she buys

part ownership in a corporation. As such, the value of that corporation's stock will tend to reflect

the earnings experience of the firm up during profitable periods and down during periods of

loss. Even within the world of stocks, there are variations in risk and reward.

"Blue chip" stocks are issues of companies that are well established within their

respective industries and have long histories of producing earnings and paying dividends. Small

capitalization, or "small cap," stocks represent shares in companies that are less established.


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Because of this, they have the potential for tremendous growth, which can translate into a large

return for investors. Bonds represent loans made by investors to companies and other entities,

such as branches of government, that have issued the bonds to attract capital without giving up

managing control.. Bondholders do not share in a company's profits. Rather, they receive a fixed

return on their investment. Bonds are issued for specified time periods. When the bond expires

and the principal (original investment) is returned, the bond is said to have matured.Every bond

carries the risk that a promised payment will not be made in full or on time. As uncertainty of

repayment rises, investors demand higher levels of return in exchange for assuming greater risk.

Bonds, similar to common stocks, fluctuate in market value and, if sold prior to maturity, may

produce a gain or a loss in principal value. An important distinction when weighing the rewards

of stocks vs. bonds is that stocks have (theoretically) an unlimited ability for appreciation. That

is, there is no upper limit to how valuable they can become.

On the other hand, a bond buyer generally knows the upper limit to expect on such an

investment, especially if it is held to maturity. It is true that a bond can sell at a premium prior to

maturity, but the potential for appreciation here is nowhere near as great as it is for stocks. Both

options have their risks as well. With stocks, although theoretically there may be no ceiling, there

is a bottom. Stocks can drop in value and become worthless. With bonds, there is interest rate,

inflation and credit risk. (Russell, 2008)

How much of my money should be in stocks vs. bonds? Whole, over long periods of time

which will be more than 15 years? Once you understand how different asset classes perform over

long periods of time, you will have an understanding of what rate of return to expect, and how

much risk, or volatility, you will have to live through to achieve that rate of return. The biggest

factor that will determine your long term rate of return and the level of risk you are exposed to,

will be your allocation to stocks vs. bonds. If your goal is to achieve returns of 9% or more, you

will allocate 100% of your portfolio to stocks.

You must expect that at some point you will experience a single calendar quarter where

your portfolio is down as much as -20%, and perhaps even an entire calendar year where your

portfolio is down as much as -60%. That means for every $10,000 invested, the value would

drop to $4,000. Over the course of many, many years, the down (which occur about 28% of the

time) will be offset by the positive years. If you want to target a long-term rate of return of 8% or


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more, you will allocate 80% of your portfolio to stocks and 20% to cash and bonds. You must

expect that at some point you will experience a single calendar quarter where your portfolio is

down as much as -20%, and perhaps even an entire calendar year where your portfolio is down

as much as -40%. That means for every $10,000 invested, the value would drop to $6,000.

You must rebalance this type of allocation about once a year. If you want to target a long-

term rate of return of 7% or more, you will allocate 60% of your portfolio to stocks and 40% to

cash and bonds. You must expect that at some point you will experience a single calendar quarter

and an entire calendar year where your portfolio is down as much as -20% in value. That means

for every $10,000 invested, the value would drop to $8,000. You must rebalance this type of

allocation about once a year. If you are more concerned with capital preservation than achieving

higher returns, then invest no more than 50% of your portfolio in stocks. Investors who want to

avoid risk need to stick with safe investments. ( Dana Anspach)

Stocks VS Bonds - differences and risks in the world of investments, you'll often hear

about stocks and bonds. They are both feasible forms of investment. They allow you the

opportunity to invest your money with a specific company or corporation with the possibility of

future profits. The easiest way to define a bond is through the concept of a loan. When you invest

in bonds, you are essentially loaning your money to a company, corporation, or government of

your choosing. That institution, in turn, will give you a receipt for your loan, along with a

promise of interest, in the form of a bond. Bonds are bought and sold in the open market.

Fluctuation in their values occurs depending on the interest rate of the general economy.

Basically, the interest rate directly affects the worth of your investment. The logic behind

this system is that the investors deal with a higher rate of interest then the actual bond pays.

Thus, the bond is sold at lower value in order to offset the gap. With bonds, unlike stocks, you,

as the investor, will not directly benefit from the success of the company or the amount of its

profits. Instead, you will receive a fixed rate of return on your bond. Basically, this means that

whether the company is wildly successful, it will not affect your investment. Your bond returnrate will be the same. Your return rate is the percentage of the original offer of the bond. This

percentage is called the coupon rate. Stocks represent shares of a company. These shares give

part of the ownership of the company to you, the share-holder. Your stake in that company is

defined by the amount of shares that you, the investor, own. Stock comes in mid-caps, small


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caps, and large caps. Stocks, unlike bonds, fluctuate in value and are traded in the stock market.

Their worth is based directly on the performance of the company. If the company is doing well,

growing, and attaining profits, then so does the value of the stock. If the company is weakening

or failing, the stock of that company decreases in value.

There are various ways in which stocks are traded. In addition to being traded as shares

of a company, stock can also be traded in the form of options, which is a type of Futures trading.

Both stocks and bonds can become profitable investments. But it is important to remember that

both options also carry a certain amount of risk. Being aware of that risk and taking steps to

minimize it and control it, not the other way around, will help you to make the right choices

when it comes to your financial decisions. The key to wise investing is always good research, a

solid strategy, and guidance you can trust. (Markus Hoettereitk)

A mutual fund is basically a pool of money from investors from around the world in

constructing a portfolio of bonds, real estate, securities and stocks. Below are 6 main reasons

why mutual funds are much better than stocks on long-term investments. Automatic

Reinvestment, with this, you can have capital gains and dividends reinvested into your mutual

fund automatically and easily without having to pay sales load or extra fees. Can Be Diversified,

Most investors buy more than just 1 stock. In order to grow their portfolio, they need to multiply

and diversify their stocks. By diversifying, you reduce the risk without sacrificing your money.

Easier to Manage, when you buy mutual funds, you will not be on your own trying to figure out

how to make money without losing money. Instead you will be provided with a professional fund

manager who knows how to take care of your investments.

Liquidity, what this basically means is that you can exchange them for cash quickly and

easily without any hassles. Only 1 Investment Portfolio, This is much better than stocks whereby

you need to come up with several different portfolios just to qualify as a long-term stockholder

and investor. Transparency, Most mutual fund holdings are publicly available. This ensures thatyou as an investor are getting what you are paying for. Apart from buying, you can sell them

too. Here are the reasons why. Meeting Your Goals, As with every investor, your objectives

could be being debt free, enjoying a blessed and fruitful retirement, travelling around the world,

providing for your family and kids in every way possible etc. But along the way towards your


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goals, changes are inevitable. For example if your children intends to further their studies

especially overseas, you certainly need to adjust your portfolio to reduce the risk of losing money

and increase the possibility of earning more. In this case, you can sell some of your investments

to buy fixed income types. Change of Fund Manager or Broker, When a fund manager or broker

resigns and another takes over, you should consider selling even if you are being told that the

replacement will do an equally excellent job. The truth is the new fund manager or broker may

have a different mindset and philosophy of doing things and managing clients. These are all the

main reasons why you should choose mutual funds. However as with most investments, you

require capital. The amount usually ranges from a couple of hundred to thousands of dollars. But

overall, you do not to spend a lot to get started. (Amuro Wesley 2010)

Money is an essential element of life. We work and earn money to get the comforts oflife, to educate our children and to increase our standards of living and so on. It is our human

nature that forces us to try hard and earn money quickly. Two popular financial instruments that

most of us have heard about are stocks and the bonds. Both of these instruments are quite

popular with the masses. The basic idea of these instruments is to provide you an opportunity to

invest in your money in a specific company and become its investor, so as to maximize your

future profits. Both of these instruments are a good alternate of investing the money, but both

have different roles to play in the share market.

Investors are aware about the fact that the share market is quite risky, but if it takes your

favor, then it can shower the huge profits on you. The financial experts suggest that favoring

bonds over stocks is not the wise decision. Rather, investors should have multiple assets and they

need to consider how one type of instrument relates to another in terms of returns and risks.

When you buy a bond, you are actually lending your money to the issuing party. Now this party

will have to give you interest in the future. The value of the bonds depends up on the market

interest rate of the particular scenario. Bonds are available for selling and purchasing in the open

share market. The worth of the money invested in the bonds actually comes from the interest rate

that the investors earn on the bonds. If you have a bond that fetches you 4 % interest rate and the

market's general interest rate is going on 3 % then you can sell this bond in the share market at a

higher face value than actually you purchased it for. Unlike stocks, bonds come with limited risk

and promise you to get the fixed interest whether the issuing party is doing good business or


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18

facing loses. Again, bonds are different from the stocks since bonds have a pre defined time

frame. They have a fixed maturity date and after which, it expires.

When a bond expires, the principal amount is also returned to the investor. The risk that

is involved with the bonds is that the issuing institution may not return the principal amount. To

avoid such situations, an investor should invest in institutions that have a sound reputation.

Stocks reflect the stability of a company and an investor, with the view to avoid risk, must invest

in the stocks of the company that is reputed and stable. Stocks are available in three categories,

i.e. small caps, mid caps and the large caps. These categories decide your stake in the company.

Unlike bonds, stocks fluctuate in the value and its worth is completely dependent up on how the

company is performing. The profit on stocks is again dependent up on the performance of the

company. With the rising performance of the company, its stock price increases and henceinvestor gains profits. One can also sell stock with this increased value. (Shivi Jain 2010)

Buying a corporate bond does not give you ownership interest in the corporation, it just

means that you are lending money to the corporation that issued the bond and in exchange for

your purchase you should expect your money back plus interest that will be earned during the

time that you own the bond. Check to see how well the business has been doing financially

within the last few years and look at the proposals for the upcoming quarter. Also see what

departments the business wants to expand in and the estimated market value proposal. The

compensation for buying a corporate bond is well worth the investment and risk at the end of the

bond's maturity. One of the risks is the Credit Spread Risk, which only compensates the

investors when the bonds value and interest rate depreciates; it means fewer taxes will be paid

out by investor. The level of interest in a bond market changes as the market value of the

business fluctuates, this adjustment only affects the interest on the bond itself, not the amount

you paid for the bond.

You can always purchase bonds from a bond broker and pay a fee and commission, or

through an online trading company, which may have fewer fees involved. Then there is short

term as well as long term bonds. Short term bonds mature after one to three years and long term

bonds have increased risk of company takeover, merger, or bankruptcy etc. The market value of

business affects the liquidity risk which leaves with the initial investor with difficulty in selling

the bond. The anticipation of inflation should be accounted for because it may decrease the price


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19

immediately after the purchase. Corporate bonds normally have higher earning yield than the

government bonds because corporations are looking to enlarge their business. If you are looking

for the tax break so never purchase corporate bonds because some government bonds are tax

exempt. (Angela Nelson)

Investing in stocks and bonds is indeed and art or skill which you should develop for

getting decent returns on your investment. Stock and bond investment made systematically are

known to give fabulous returns to investors. The money earned through the route of appreciation

in stock prices and dividends will help you to beat the rising inflation rate and save money for

the future. Though investing in stocks is more risky than investing in bonds which always give

fixed returns. Investing in stocks with little money should be our strategy when you first enter

the stock market because you have no experience and should not to take a risk. Investing in

stocks for beginners requires preparation of a good investment portfolio comprising of stocks of

companies belonging to varied sectors of the economy. The investment in stocks is the receipt of

divided from profitable companies.

New investors should avoid considering high risk stocks to invest in as they may not

understand when stocks prices start tanking to new lows. Investing in bonds is believed to be a

much safer investment option than stock trading and investing because these are supposed to

give fixed percentage returns to the investors. This rate of return will not be changing even

though the company does not make profits. Bonds are issued through a lot of advertisements

which contain all the details regarding the business, turnover and sales and profits of the

company. First of all before any investment decision, you need to study the financial aspects of

company thoroughly. Choose government run companies for which government give guarantee.

(Charlie S, 2010)

Bond portfolios usually take a back seat to stock portfolios when it comes to popularity.

While they play an important role in overall asset allocation, they just don't seem to get the same

attention as their much jazzier stock-based cousins. Properly constructed bond portfolios can

provide income, total return, diversify other asset classes and be as risky or safe as the designer

desires. The fixed-income world is even more diverse and exotic than any stock market ever

was. The bonds can also be used in an account as collateral for loans including, margin loans to


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20

purchase other bonds, stocks and some funds. Bonds are quite versatile and are excellent

liquid vehicles for meeting investing goals and objectives. Bond income can be either taxable at

the federal rate or exempt from federal tax. Beyond that, there are many variations of taxability

at the state and local levels up to and including intangible tax.

A bond portfolio's total return is the total change in the value including income and

capital appreciation or depreciation over a specified time interval. Market value fluctuations, and

ultimately risk characteristics, are affected by interest rates. As an asset class, bonds help

diversify the overall portfolio because of the low correlation to other asset classes. The lonely

bond portfolio always shines brightest when equity markets slump. While the correlations vary

widely over different time periods, overall, bonds are not highly correlated with other asset

classes besides in general. Even in the simplest form of a diversified portfolio - one with three

asset classes, stocks, bonds and cash - bonds can reduce volatility due to cross-correlation with

the stock portfolio. (Michael Schmidt)

Bond valuation is a process or strategy that is used to identify the fair market value of a

given bond issue. This process involves allowing for the present value of the interest payments

connected with the bond, as well as the total value of the issue at the point of maturity.

Identifying the bond valuation makes it possible for an investor to determine if the overall return

from the investment is worth the time and money required to acquire the bond and hold it all the

way to maturity. The process of bond valuation takes into consideration the cash flow connected

with the bond issue under consideration. Typically, the cash flow is realized from the interest

payments that are made on the bond at regularly scheduled intervals. This in turn is related to the

par value of the bond, or the face value that the bond holds at the time it reaches maturity. By

approaching the overall worth of the investment from both these angles, it is easier for an

investor to evaluate the issue and decide if it is worth his or her time, or if another investment

option should be selected. Engaging in bond valuation can be somewhat more complicated if

the rate of interest connected with the investment opportunity is variable rather than fixed. In this

scenario, the task is to project movements in the marketplace and how those movements will

impact the prevailing interest rate. (Wise Geek)


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21

The most obvious difference between stocks and bonds are that stocks enable the

investor to own a part of the company, while the bonds are nothing but loans that the investors

provide to the company. Stockholders would benefit or lose as per the fate of the company, but

investors in bonds will get a fixed rate of return; this would be a percentage that would be the

original offering price on the bond, known as the coupon rate. Moreover, bonds have a maturity

date after which the principal amount is returned. These maturity dates could go as long as thirty

years for maturity. There are credit ratings to determine how the companies stand in respect of

paying back the principal amounts of the bonds.

Companies with higher credit ratings are safer investments, but then they would give a

lower coupon rate. Buying and selling of bonds is done on the open market. The value of the

bonds would fluctuate depending on the level of the interest rates in the general economy. Bondsare generally traded in the over-the-counter market set up by banks and security firms. The stock

exchange is also used for trading, which enable stockbrokers to sell bonds. This could clear the

air about whether to invest in stocks or in bonds. A careful investigation must be done by the

investor as to the risks and the potentials involved. Stocks can increase faster, but then they can

also decrease as fast.

Hence, if you are looking for a short term investment, then the bonds will give you better

security and return. If the investment is being planned for more than ten years, then the stock

market is much better in returns.

Companies would increase in their worth over such significant periods of time and short-

term fluctuations would be taken care of. Most portfolios still figure bonds prominently in them.

This shows that they are considered to be safe investments and as a buffer to the stock market

fluctuation. Wise investors would blend bonds and stocks from various industries together to

achieve maximum profits, and also for security of investments. (Adanheist, 2007)

As you search for stocks and bonds related information or other information about fixed

rate with capital or municipal bond rates, take your time to view the below article. It will provide

you with a really refreshing insight into the stocks and bonds information that you need. After

going through it you will also be better informed about information in some way related to stocks


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22

and bonds, such as coupon bonds or even treasury bonds prices. If stock prices are up, bond

prices witness a downturn and if stock prices are down, bond prices are generally on an upsurge.

A lot of bonds are fairly low risk, as generally it's expected that you'd at least receive your

money back in a crisis, but the lower the risk, generally the lower the return on the bond. Since

they first emerged 100 years ago, surety companies in the United States have evolved

considerably, nowadays delivering reliable, efficient and high-quality services.

Consequently, surety bonds have diversified considerably in the last few years, addressing a

wide range of risk situations. Bond is simply an investor owned utility (IOU) in which an

investor agrees to loan money to a government agency or to a company for a predetermined

interest rate. The interest rate paid on bonds depends on several factors such as financial strategy

of the government in power or the strength of the corporation; current market interest rates, andthe length of the term. As these factors fluctuate over time, the market value of a bond may also

vary after it is issued. Bonds are undoubtedly a valuable form of investment. It is always

advisable to invest in stock bonds, as they are comparatively risk-free in nature in comparison to

other bonds. It was intriguing to find that many people, oblivious of their background, found this

article related to stocks and bonds and other future market, interest rate chart, and even bond

quotes free helpful and information rich. (Deepak kulkarni, 2009)


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23

RESEARCHMETHODOLOGY

Corporate bond market

When companies need financing they have four basic options: retained earnings, bank

borrowing, corporate bonds, and equity. A well functioning corporate bond market is an

important component of financial sector development of an emerging economy. Several studies

have found that financial market development is correlated with economic development.

Corporate bond markets are important for several reasons including: as a source of long term

financing, providing competition to the banking sector, and enhancing financial sector stability.

Corporate bond market in Pakistan

The corporate bond market in Pakistan is still at an early stage of development with total

public corporate debt issues accounting for just over one percent of GDP. The corporate bond

market exists in Pakistan in the form of Term Finance Certificates. TFCs are based on legislation

enacted in 1984, which authorized the issuance of redeemable capital securities. As a debt

instrument, the TFC is slightly different from the traditional corporate bond because it was

specifically designed to comply with Sharia Law. The key difference is that the TFC substitutes

the words "expected profit rate" for "interest rate." The TFC issuers include both non-financial

and financial institutions as well as private and public firms. The coupon rate on the TFCs

display a wide variety with different fixed coupons as well as floating coupons linked to various

interest rates including the discount rate, Pakistan Investment Bond (PIB) rates, and the Karachi

inter-bank Offer Rate (KIBOR).


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Examples of few companies which issue TFCs in Pakistan

There are only few companies which issues TFCs in Pakistan for raising finance, some of

them are as follows.

Packages Limited

The corporate bond market in Pakistan, in the form of TFCs, has experienced robust

growth since the first TFC issue of Packages Limited for Rs. 232 million in February of 1995.

The total amount of outstanding TFCs as of March 2006 is estimated at Rs. 57.99 billion (US$

dollars 0.97 billion or 1.12 percent of GDP).

WAPDA

In 1988, Water and Power Development Authority (WAPDA), a government owned

statuary company, issued a five year bond. Over the period 1988 to 1994, WAPDA issued Rs.

22.5 billion of bonds to the public. The market experience of WAPDA bonds was disappointing

due to two factors. First, WAPDA had to delay repayments of its maturing bonds due to

insufficient funds. Second, the secondary market for the WAPDA bonds did not meet market

expectations due to the under capitalization of the market maker resulting in low liquidity of the

bonds.

PIA (Pakistan International Airlines)

The largest TFC ever issued was by PIA for Rs. 15.4 billion, issued in February of 2003,

it was the 50 percent of the total number of TFCs outstanding in Pakistan. Then secondly PIA

issue sukuk bonds in 2009 6.8 billion in 2009.

NetworkLease

Smallest issue was for Rs. 100 million issued by Network Lease in October of 2000.


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Internationalcomparison

Pakistan is far behind in this segment as compared to contemporary markets in emerging group

of countries as evident from the following data.

Size ofLocalCurrency Bond Market as a % of GDP

22.16

9.17

24.77

39.1 40.18

4.4

12.96 38.85

58.26

54.14

31.29

0.9

0

10

20

30

40

50

60

70

80

90

100

China Hong Kong Korea Malaysia Singapore Pakistan

Government Corporate

Country Government Corporate

China 22.16 12.96

Hong Kong 9.17 38.85

Korea 24.77 58.26

Malaysia 39.1 54.14

Singapore 40.18 31.29

Pakistan 4.4 0.90


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Total Size ofLocalCurrency Bond Market

633.03

85.09

637.86

121.7983.43

6.5280

100

200

300

400

500

600

700

China Hong Kong Korea Malaysia Singapore Pakistan

Total Size (Billion USD)

% share

Country Total Size (Billion USD) Government Corporate

China 633.03 63.6 36.4

Hong Kong 85.09 19.1 80.9

Korea 637.86 29.8 70.2

Malaysia 121.79 41.9 58.1

Singapore 83.43 56.2 43.8

Pakistan 6.528 82.87 17.13


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Problem Statements

As literature review shows the different aspects of bonds and research conducted on this

topic. We also describe the aspect of corporate bond market in Pakistan as compared to other

countries which has very low contribution in financial market. So by studying these concepts we

decide to work on Pakistan International airlines for our project because PIA was the largest

issuer of bonds in Pakistan and it solely issue two types of bonds. So by considering all these

aspects we chose the topic for our research is

Either bonds or stock are better to raise finance for PIA.

What is the impact of long term debts on the market price per share of PIA?

For that purpose we collect all the primary data from the website of PIA for our research

and calculations. We study all the financial reports carefully and collect secondary data about

the issuance of Term certificates and bonds by PIA through business recorder and from different

journals and websites on internet.

We chose these two variables which are the long term debts and MPS in which long term

debts are dependent variable and MPS is independent variable. Long term debts have a strong

effect on profitability of the firm and then profitability affects MPS. MPS is inversely related to

the long term debts. The data for calculation and application of test is available in the financial

statements of PIA. We have done a co-relational study in order to check out strength of

relationship between dependent variable and independent variable.


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Either Bonds or Stocks

When we see the financial performance of the PIA it was not good from past few years

because it faced losses continuously. Corporation has no more finance for its operations and it

can raise finance from different sources. Now we see that which type of is better for PIA.

1. Taking on debt by issuing bonds is usually cheaper than either a bank overdraft or the

cost of raising equity through a share issue. A major advantage is that the return on debt

(interest) is tax-deductible, whereas the return on equity (dividends) is paid out of a

companys profits, which are taxed before dividend payments can be made to

Stockholders and PIA are not earning profit.

2. Debt issuance can also be advantageous from a governance point of view. Creditors haveno influence on the board or company policyunlike stockholders, who often have the

right to vote on policies and the appointment of directors. Financing through debt can

thus be very useful for companies that do not want to relinquish control to others.

Because PIA is totally under the control of federal Govt. and it follow its own rules and

policies which are better for the country.

3. Bonds offer a more secure return for investorsdividends are paid out purely at the

discretion of the company, whereas interest on debt must be paid according to the set

terms of the bond. And PIA earns no profits so it has only potential to raise finance from

bonds because investors can easily invest in bonds.

4. The risks for bondholders rise as more debt is issued. But in case of PIA Govt. of

Pakistan give guarantee of the bonds and the risk of investor reduced.

5. Another problem is more likely to face cash flow difficulties as it has to meet the coupon

payments and PIA faces continuous losses. In some cases the cost of servicing the debt

may rise beyond the ability to pay, due to low profitability or any other external or

internal factors. But when we see PIA Govt. of Pakistan pays coupon payments and

purchases shares of PIA in return.

6. If the company is publicly listed on a stock exchange, the risk to stockholders increases

when debt is issued. This is due to the increased claims of the creditors, or bondholders,

on the companys capital and earnings, which must be used to service the debt before


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anything else. The market value of shares of PIA is very low because of its increased

losses and debts due to Govt. owned corporation it can make its stable with efficient use

of debts of its growth.

7. Another option is to issue convertible bonds. These bonds can be converted in stocks and

has 1or 2 percent low coupon payment. But if do this the large voting power goes to the

private stockholders and voting right shifts to them. Govt. is not willing to do so because

it wants to remain PIA under its own control.

8. The bonds issued by PIA are callable and at a notice of particular time can be call back.

This option is not used for shares. When corporation have enough finance it can call the

bonds back.

9. When we see the option of issuance of stock it has no much potential because the market

value of stock of PIA is very low due to losses. So no much more finance can be raised

due to very low market price of shares.

10.Investors are not willing to purchase the shares of PIA because of its continuous losses

and also uncertainty of future.

11.Government has no much finance to purchase the share of PIA in much large quantity

because corporation needs very large finance to overcome its present situation.

Conclusion

We now conclude that bonds are more suitable for PIA to raise finance instead of stocks due to

above reasons.


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KEY FINANCIAL DATA OF PIA

Rs. In Billions

Years 2009 2008 2007 2006 2005 2004

Profit (Loss) after tax (5.82) (36.14) (13.40) (12.76) (4.41) 2.31

Equities (49.05) (47.52) (11.90) (.788) 60.14 58.89

Long term debts 105.42 96.63 74.28 62.65 38.10 42.52

Debt Equity Ratio NA NA NA NA 4.15 3.52

EPS (2.72) (17.79) (6.61) (6.80) (2.55) 1.76

MPS 2.61 3.51 6.30 7.05 12.30 13.70


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Long Term Debts and MPS of PIA.

Long Term Debts and MPS in 2004

Discussion

Long term debts have a large portion of FTCs which had issued during the year 2003

fully paid 151400 TFCs having the denominations of Rs. 100,000 each. These TFCs having

semi annually payments in arrears and the corporation have a call option for early redemption

after 24 and 48 months from the date of issuance with the 60 days notice period.

The above TFCs have been obtained as a financial package of Rs. 20 billion approved by

GoP and are secured against the guarantees issued by GoP. The amount of mark up is provided

by the GoP as its equity contributions.

When we make analysis of MPS we see that corporation earns profit in 2003 and the

operations of 2004 are also good and quarterly reports shows profits and corporation was in good

position. So the demand of shares was existent in the market and closing market price per share

is Rs. 13.7 (Rs. 10 par value). The was also high due to the low supply of shares in the market

because corporation issued share to GoP as against its equity contribution for the purpose of

interest against TFCs.

42.52

13.7

0

5

10

15

20

25

30

35

40

45

Long term debts (In billion) MPS


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32


Discussion

Because of the profitability in 2004 corporation paid out some current portion of long

term debts in which the portion of TFCs are Rs. 756.97 millions are paid out due to that long

term debts are decreased. This was good decision for the corporation to pay out its debts but it

can be done only when the operations of corporation was done in profitable manner.

There is a profitable business by corporation in 2004 but in 2005 fuel prices and many

other operating costs are increased and corporation faces loss. Through the quarterly reports of

company it was shown that it is very difficult for the corporation to earn profit in that year so

share price was decline slightly but still it was above the par value.

38.1

12.3

0

5

10

15

20

2530

35

40

45



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33


Discussion

In this year corporation faced continuous losses and raise finance to meet its short term

need for finance requirements and to finance its operating cash requirements. When we see MPS

it shows very much decline. MPS decreases only due to the continuous losses of the corporation.

It also increase its long term debts due to which it have to pay higher finance cost which has also

negative effect on EPS.


62.65

7.05

0

10

20

30

40

50

60

70


74.28

6.3

0

10

20

30

40

50

60

70

80



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34

Discussion

When we see 2007 there was a same trend as in 2006 debts increased due to the continuous

losses and MPS also decreased.


Discussion

Financial situation was remained same in 2008 and corporation faced continuous losses

and raise finance for its operating requirements through long term debts. MPS also declines due

to the same factors. Due to continuous losses corporation charged losses to the accumulated

losses account and then finally this account charged to the capital reserves account. Due to these

accumulated losses total equity of the corporation shows in negative form. So company has no

reserves to meat its operating requirements in long run.

96.63

3.51

0

20

40

60

80

100

120



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35


Discussion

The profitability trend of corporation was remained the same that corporation face losses

also in 2009. Now the corporation needs large finance to meet operating cash flows,

infrastructure development and to cut borrowing cost of loans.

So corporation issued GoP guaranteed FTCs for aggregating Rs. 12,800 million whichhave face value Rs.15,140 million and carry 6 months KIBOR and 85 basis points. From which

some TFCs are issued for replacing the existing TFCs. This restructuring was performed in the

coordination with the Ministry of Finance, as duly approved by the ministry in a financial

restructuring plan. These TFCs are secured by the guarantee of GoP and Standard Chartered

Bank appointed as trustee under the trust deed. The corporation has an option of early purchase

with a 30 days notice period at a nil premium. These TFCs have been issued as a part of 26,500

million approved by GoP.

During the year corporation also has issued GoP guaranteed, privately placed sukuk

certificates amounting to Rs. 6,800 million to refinance the short term loans amounting to

Rs.6730 million. The certificates carry 6 months KIBOR plus 175 points per annum. Meezan

bank has been appointed as the trustee under the trust deed.

105.42

2.61

0

20

40

60

80

100

120



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36

Effect oflong term debts on MPS of PIA

Assumptionswe assume that the profitability position of PIA remains the same that is faces losses and nochange in demand and supply of shares.

Years Long term debts (X)

Billion Rs.

MPS (Y)

2004 42.52 13.70

2005 38.10 12.30

2006 62.65 7.05

2007 74.28 6.30

2008 96.63 3.51

2009 105.42 2.61

SOLUTION

Years Long term

debts

(X)

MPS

(Y)

XY X2

2004 42.52 13.10 557.012 1807.9504

2005 38.10 12.30 468.63 1451.6100

2006 62.65 7.05 441.683 3925.0225

2007 74.28 6.30 467.964 5517.51842008 96.63 3.51 339.171 9337.3569

2009 105.42 2.61 275.146 11113.3764

Total: 419.60 44.87 2549.606 33152.8346

Y = a + b X

a = Y b X

b = nXY (X)(Y)__n X2 (X) 2

b = (6)(2549.606) (419.60)(44.87)_(6)(33152.8346) (419.60) 2

b = 15297.636 18827.452_


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198917.0076176064.16

b = 3529.816_22852.8476

b = 0.15446a = 7.4783 (0.15446) (69.9333)a = 18.2802Y = 18.2802 + ( 0.15446) XY = 18.2802 0.15446 X

Testing Regression Estimates

Long Term

Debts

(X)

MPS

(Y)

^

Y

^

(Y Y)

(YY) (Y)

42.52 13.10 11.7126 17.9293 38.7096 187.6938.10 12.30 12.3953 24.1769 23.2488 151.29

62.65 7.05 8.6033 1.2656 0.1834 49.7025

74.28 6.30 6.8069 0.4508 1.3884 39.69

96.63 3.51 3.3547 17.0041 15.7474 12.3201

105.42 2.61 1.9970 30.0444 23.7003 6.8121

419.60 44.87 = 90.8711 = 102.9780 = 447.5047

R = Explained Variation_

Total Variation^

R = (Y Y)

(YY)

R = 90.8711102.9780

R = 0.882

Comments:

The value of R is 0.882, which means that more than 88 percent of the variation in

MPS is explained by change in Long Term Debts. Thus, the equation would appear to fit the data

quite well.


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38

Graphical Representation

Conclusion

After discussing aspects we see that the operations of PIA are not up to mark. Its faces

continuous losses and these losses are charged to equity which is in a negative form and

corporation uses short term and long term debts to finance even its daily operations. So

management should use long term debts for the growth of the corporation and Govt. should take

steps to make it a profitable institution.

0

20

40

60

80

100

120

2004 2005 2006 2007 2008 2009

Years

Rupees

Long term debts MPS


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39

References:

1. Stan Aberdeen, Bond portfolio Vs. Stock portfolio

www.ehow.com

2. Angela Nelson, (2010) Buying Corporate Bonds: 10 Tips

www.mademan.com

3. Richard Cloutier, How to Compare Yields on Different Bonds

www.investopedia.com

4. B. J. Lexuus, How bond valuation works

www.helium.com

5. S. Richard, Bond valuation and Savings bonds

www.wisegeek.com

6. Micheal Schmidt, CFA; Bond portfolio made easy


7. Bengt Saelensminde, ( 2010), The most dangerous investment idea today

www.moneyweek.com

8. Paul Conley, What is a Bond

www.about.com

9. Charlie S, (2010), Investing in Stocks and Bonds

www.buzzle.com

10. Stocks Better than Bonds?; Mar 29, 2006, 23:38www.ezilon.com

11.Markus Heitkoetter (Apr 09, 2008); Stocks Vs. Bonds: Differences and Risks

www.articlebase.com


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12. Michael Redmond; Why Bonds May Be Better Than Stocks

EzineArticles.com

13. Carmelo J. Montalbano; Why Are Bonds Better Than Stocks?

www.ehow.com/about

14. Stan Aberdeen (January 17, 2010); Why Do Bonds & Stocks Have a Low Correlation?

www.ehow.com/facts

15. Stan Aberdeen; Bond Portfolio Vs. Stock Portfolio

www.ehow.com/facts

16. Dana Anspach; How Much of My Money Should Be In Stocks vs. Bonds?

www.moneyover55.com

17. Shivi jain(Oct 21, 2010 ); Stocks Vs Bonds - DifferenceAnd The Risk Involved Between These

Financial Instruments

www.articlebase.com

18. Deepak kulkarni(Sep 14, 2009); StocksAnd Bonds Useful Guideline;

www.articlesbase.com/finance-articles

19. Richard Gibbons, Why bonds beat stocks, June 29, 2009

20. Carmelo J. Montalbano, Why are bonds better than stocks?

www.eHow.com

21. Stan Aberdeen, Why Do Bonds & Stocks_Low Correlation? January 17, 2010

www.ehow.com

22.By Ezilon.com Articles, Stocks Better than Bonds?, Mar 29, 2006, 23:38

23. Stan Aberdeen,Bond Portfolio Vs. Stock Portfolio,2009www.ehow.com

24. Michael Redmond

EzineArticles.com/?expert=Michael_Redmond


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25. Ashwin Satyanarayana,Difference _Stocks &Bonds, Jun 23, 2010

www.brighthub.com/money/personal-finance/articles

26. Jason C. Chavis,Investing in bonds, Aug 7, 2010

www.brighthub.com

27. Allen Young, Major Differences between Stocks & Bonds

www.ehow.com

28. Limowreck, How to Choose Between Stocks and Bonds

29. Wesley Tucker, June 25, 2010

www.valuestockbuylistprogram.com

30. Steve selengut, Professional portfolio Management

www.sancoservices.com

31. Kulbhushaan Raghuvanshi Best Stocks to Invest in 2010, November, 16, 2010


32. Mehtab Haidar, The Govt. decided to issue sukuk for PIA

www.thenews.com

33. Shahnawaz Akhter, PIA to raise Rs to billion through Sukuk Bonds

www.businessrecorder.com

34. Mushtaq Ghuman, ECC May allow PIA to flot Rs 16 billion Sukuk

www.brecorder.com

research report on bonds of pia

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