Only those businesses that work at their agility will be positioned to respond to changes we are undergoing, says Ian Mann.
News24.com | IAN MANN REVIEWS | Seizing opportunity when the unknown looms large
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Global Advisors | Quantified Strategy Consulting
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Answering Yes to 2 Questions Means You’re Likely A Good Boss
By Marcel Schwantes
Remember: How leaders make people feel in their jobs will have the greatest impact on their performance.
Civil rights activist Maya Angelou once said, “People will forget what you said, people will forget what you did, but people will never forget how you made them feel.”
This is especially true for those in leadership role. They are remembered best for emotionally and intellectually engaging and motivating their employees to do and be their best.
Consequently, how leaders make people feel in their jobs will have the greatest impact on their performance.
Truly motivating and engaging workers, and getting them emotionally excited about their work, starts with good leadership.
To know whether you fit the bill of a leader, answer these two questions.
Are you intentionally building relationships?
Building relationships doesn’t have to be difficult. Rashada Whitehead, head of culture, diversity, and inclusion at Grant Thornton, notes, “The simple practice of saying ‘good morning’ to team members, the ability to call someone by name, or connecting back to a moment or story that matters demonstrates that people and relationships are a priority beyond a profit.”
What this comes down to is fairly simple. It means taking an interest in those you lead at the human level and not treating them like just an employee whose sole purpose is to complete tasks for you.
Good leaders open up the room for discussion, healthy debate, and the exchange of ideas to get to know team members on a deeper level. They ask for people’s opinions to help them get to know those who might not otherwise approach them. This helps to build trust among employees and bolsters employee retention.
Are you guiding people with an inspiring vision?
A leader’s highest priority should be to guide employees through uncertainty and the unexpected to assuage fears amidst the unknown. To do that, a clear vision of the immediate future should be communicated to your employees — one with a simple, not complicated or confusing, message that sticks in people’s minds and inspires them to action.
In his new book The Vision Driven Leader, best-selling author Michael Hyatt says that when it comes to leadership, vision is key. So much so that he’s willing to call vision the essential ingredient for successful leadership.
In the Covid-19 era, if you’re leading a team but don’t know where you’re going, it shows up as hesitancy or self-doubt. Vision, Hyatt states, allows you to know where you’re going, and gives you the confidence to get your team there.
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Term: Strip Bonds
What Is a Strip Bond?
A strip bond is a debt instrument in which both the principal and regular coupon payments—which have been removed—are sold separately. A strip bond is also known as a zero-coupon bond.
Key takeaways
- A strip bond is a debt obligation whose principal and coupon payments are removed (or stripped) by investment firms or dealers and sold separately to investors.
- An investor who buys the separated principal from the bond, known as the residue, receives an amount equal to the face value of the bond when it matures.
- An investor who purchases the coupons receives the interest they pay on the bond’s maturity date.
- Because no payments are made before maturity, a strip bond has no reinvestment risk.
A conventional bond, also known as a coupon bond, is one that makes regular interest payments to bondholders who receive repayment for their principal investment when the bond matures. These investors receive interest income, known as coupons, from these bonds which may be purchased at par, at a discount, or at a premium .A strip bond is a bond where both the principal and regular coupon payments—which have been removed—are sold separately.
Not all bonds make interest payments, though. These bonds are referred to as strip bonds. A strip bond has its coupons and principal stripped off and sold separately to investors as new securities.
An investment bank or dealer will usually buy a debt instrument and “strip” it, separating the coupons from the principal amount, which then becomes known as the residue. The coupons and residue create a supply of new strip bonds which are sold to investors. A strip bond has no reinvestment risk because there are no payments before maturity.
On the maturity date, the investor is repaid an amount equal to the face value of the bond. The difference between the purchase price of the bond and the face value at maturity represents the investor’s return on the bond. For example, assume an investor purchased a bond residual today for $3,200. The bond has a face value of $5,000 and is set to mature in five years. At maturity, the return on the strip bond residual will be $5,000 – $3,200, or $1,800.
Let’s consider another investor that purchased the coupon, instead of the residual. The investor will receive one of the bond’s original semi-annual interest or coupon payments. If the coupon rate on the bond is 4%, the interest payment to be received twice (since it’s a semi-annual payment schedule) can be calculated as (4% ÷ 2) x $5,000 = $100. The investor will pay ($3,200 ÷ $5,000) x $100 = $64. Their return at maturity will, therefore, be $100 – $64 = $36.
How Strip Bonds Are Priced
The market price of a strip bond reflects the issuer’s credit rating and the present value of the maturity amount, which is determined by the time to maturity and the prevailing interest rates in the economy—the farther away from the maturity date, the lower the present value, and vice versa. The lower the interest rates in the economy, the higher the present value of the strip bond, and vice versa. The present value of the bond will fluctuate widely with changes in prevailing interest rates since there are no regular interest payments to stabilize the value. As a result, the impact of interest rate fluctuations on strip bonds, known as the bond duration, is higher than the impact on a coupon bond.
Because holders of strips don’t receive additional income through interest payments, strip bonds typically trade at a deep discount to par.
Special Considerations: Strip Bonds and Taxes
If the bond is held to maturity, the return earned is taxable as interest income. Even though the bondholder does not receive interest income, they are still required to report the phantom or imputed interest on the bond to the Internal Revenue Service (IRS) each year. The amount of interest an investor must claim and pay taxes on a strip bond each year adds to the cost basis of the bond. If the bond is sold before it matures, a capital gain or loss may ensue.
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