Section I: Overview of Bonds I. Overview of Bonds (1) Definition of Bonds A bond is a negotiable security issued by an issuer in accordance with statutory procedures, promising to repay the principal and pay interest within a specified period. The bondholder (creditor) and the issuer (debtor) establish a creditor–debtor relationship: the creditor has the right to receive interest as agreed and recover the principal upon maturity, but has no right to participate in the issuer’s management and operations. Buying stocks makes one a shareholder, entitling one to residual claims; returns are uncapped on the upside and unprotected on the downside. Buying bonds makes one a creditor; returns are fixed at issuance. A bond can be viewed as a standardized loan agreement—its face value corresponds to the principal, its coupon rate to the interest rate, and its maturity date to the repayment date. (2) Face Elements of a Bond A bond’s face typically specifies the following elements: face value (the basis for interest calculation and principal repayment; generally ¥100 in China), coupon rate (the ratio of annual interest to face value), maturity date (the date on which the principal is repaid), interest payment method (e.g., single payment at maturity, annual payments), issuer name (directly determining credit risk level), and bond name (e.g., “26 Coupon-Bearing Government Bond No. 10”). (3) Characteristics of Bonds Bonds possess four fundamental characteristics: • Repayability (a fixed maturity date exists, and the principal must be repaid at maturity); • Liquidity (bonds can be traded on secondary markets or pledged for financing); • Safety (relative to stocks, bond returns are fixed and bondholders enjoy priority in liquidation); • Profitability (returns arise from both agreed-upon interest and capital gains/losses from price differences). Note that “safety” is relative—credit bonds may still default, and interest-rate bonds may decline in price when market interest rates rise. The distinction between bonds and stocks can be clearly understood across six dimensions: Dimension Bond Stock Nature of rights Creditor instrument Ownership instrument Relationship with issuer Creditor–debtor relationship Shareholder–company relationship Principal Repayable at maturity Not repayable; transferable only Returns Fixed interest, relatively stable Dividends + capital gains; uncertain Liquidation priority Senior to stocks Subordinate to bonds Participation in management No right to participate Entitled to vote on major decisions (4) Classification of Bonds Bonds can be classified along multiple dimensions; the most commonly used classification in practice is by issuing entity: government bonds, financial bonds, corporate bonds, and enterprise bonds. Additional cross-classifications include: • By interest payment method: discount bonds (issued below face value and redeemed at face value at maturity—the difference constitutes interest), coupon-bearing bonds (interest paid periodically; the dominant type in China), and cumulative-coupon bonds (interest accumulates and is paid in full at maturity); • By whether the interest rate is fixed: fixed-rate bonds vs. floating-rate bonds; • By maturity: short-term (within 1 year), medium-term (1–10 years), and long-term (over 10 years); • By offering method: public offerings vs. private placements; • By security: secured bonds (backed by mortgage, pledge, or guarantee) vs. unsecured (credit) bonds; • By embedded options: callable bonds, puttable bonds, and convertible bonds. II. Government Bonds Government bonds are debt securities issued by governments to raise funds, backed by sovereign credit—the highest credit rating among all bond types. In China, government bonds comprise two tiers: central government bonds (i.e., national treasury bonds) and local government bonds. (1) National Treasury Bonds

I. Bond Financing: Borrowing from the General Public In addition to borrowing from banks, enterprises can raise funds from the general public by issuing bonds. Ordinary individuals may also purchase corporate bonds—buying a bond is equivalent to lending money to the enterprise. Bonds with different maturities are accounted for in different accounts: Maturity Account Used Within 1 year Trading Financial Liabilities Over 1 year Bonds Payable 📌 Analogy: Buying government bonds means lending money to the state; buying corporate bonds means lending money to an enterprise. II. Core Challenge in Bond Issuance: Coupon Rate vs. Market Interest Rate • Basic Concepts • Key bond face elements include face value (e.g., ¥100), coupon rate (e.g., 8%), and term (e.g., 5 years). • The core tension lies in the fact that the coupon rate printed on the bond often differs from the prevailing market interest rate at issuance. • Three Issuance Scenarios • Par issuance: occurs when the coupon rate equals the market interest rate; bonds are issued at face value. • Premium issuance: occurs when the coupon rate exceeds the market interest rate; issue price is above face value. • Discount issuance: occurs when the coupon rate is lower than the market interest rate; issue price is below face value. • Pricing and Redemption Mechanism • Theoretical issue price = present value of future periodic interest payments (as an annuity) + present value of the principal repayment at maturity; the discount rate used must be the market interest rate prevailing at issuance. • Redemption at maturity is standardized: the principal is repaid strictly at face value (e.g., ¥100), and interest is calculated strictly as “face value × coupon rate”, irrespective of the investor’s purchase price. • The essence of premium/discount: the price difference at purchase is not refunded at maturity but is realized over the holding period as part of the return. The discount represents a capital gain; the premium reflects prepayment of excess interest. • True Return: Yield to Maturity (YTM) • Key conclusion: For investors holding to maturity, their return is locked in at the market interest rate prevailing at the time of purchase—not the coupon rate. • YTM formula: • P: Purchase price (issue price or secondary-market price) — determined by the market • C: Periodic interest payment (face value × coupon rate) • F: Face value • YTM: True annualized return • Role of the coupon rate: It determines only the cash flow structure (i.e., whether more interest or more capital gain/loss is received), not the total final return. • Three Critical Preconditions for Return Lock-in 1. Holding to maturity and ignoring reinvestment: If interest income is reinvested, total wealth accumulation remains subject to subsequent changes in market interest rates. 2. Fair market pricing: In the absence of special factors, YTM equals the market interest rate; if credit risk or liquidity differences exist (e.g., government guarantees, liquidity premiums, or tax advantages at issuance), then YTM = market interest rate + risk premium. 3. No early sale: If sold before maturity, the realized return depends on the market interest rate at the time of sale (reflected in the bond’s price), not the interest rate at purchase. Question: What happens if market interest rates decline during the holding period until maturity? One-sentence conclusion: Absolute cash flows remain unchanged; YTM remains locked in; relative to new entrants, the investor holds an advantage; however, reinvestment yields a real loss; and potential capital gains are forfeited.

USP8718AAL00 Bond Profile: Coupon and Redemption

Oct 19, 2026

Sociedad Quimica y Minera de Chile S.A. released a bond profile for USP8718AAL00 featuring a 4.25% semi-annual fixed coupon. Key details include issue dates, face value, and redemption schedules.

TradingView

2026-03-31

SQM Proposes 50% 2025 Earnings Payout, Stock Rises 7.3%

2026-04-13

Sociedad Quimica y Minera de Chile Stock Hits 52-Week High

2026-04-15

SQM (NYSE: SQM) files updated technical report summaries on Chile properties

2026-04-15

SQM Files Salar de Atacama Technical Report Summary and Consents

2026-04-17

Sociedad Quimica y Minera Shares Fall 7.2% Amid Analyst Concerns