Basic Characteristics
- Par Value. Each bond has a par value (which is also called its face value or principal). It is principal amount at which...
- Coupon Interest Rate. Most bonds pay periodic interest payments called coupon bonds. The coupon interest rate (also...
- Maturity Date. The maturity date of a bond is the date on which the issuer pays back the maturity value of...
What are three main characteristics of bonds?
Following are the types of bonds:
- Fixed Rate Bonds In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond. ...
- Floating Rate Bonds Floating rate bonds have a fluctuating interest rate (coupons) as per the current market reference rate.
- Zero Interest Rate Bonds Zero Interest Rate Bonds do not pay any regular interest to the investors. ...
What are the features of bonds?
The sequence of Bond driving a tank through a street while his legendary theme plays is nothing short of iconic. The movie also introduces Judi Dench as M, one of the best characters in the entire series.
What are the key features of a bond?
From book to iconic film In fact, though, several key members of the production team responsible for the Bond films also worked on Ipcress ... And if you liked this story, sign up for the weekly bbc.com features newsletter, called The Essential List.
What bonds can be classified by Bond character?
In the conventional presentation, bonds are designated as ionic when the ionic aspect is greater than the covalent aspect of the bond. Bonds that fall in between the two extremes, having both ionic and covalent character, are classified as polar covalent bonds. Such bonds are thought of as consisting of partially charged positive and negative poles.
What are the 5 characteristics of bonds?
Characteristics of bondsFace value. Corporate bonds normally have a par value of $1,000, but this amount can be much greater for government bonds.Interest. ... Coupon or interest rate. ... Maturity. ... Issuers. ... Rating agencies. ... Tools and tips.
What are the 3 characteristics of bonds?
All bonds have three characteristics that never change:Face value: The principal portion of the loan, usually either $1,000 or $5,000. ... Maturity: The day the bond comes due. ... Coupon:
What is a bond and what are its main characteristics?
A bond is a contractual agreement between the issuer of the bond and its bondholders. The most important common characteristics vis-à-vis all bonds refer to the bond issuer, maturity date, coupon, face value, bond price, and bond yield. These common characteristics of bonds determine the scheduled cash flows of a bond.
What are 2 features of a bond?
Two features of a bond—credit quality and time to maturity—are the principal determinants of a bond's coupon rate. If the issuer has a poor credit rating, the risk of default is greater, and these bonds pay more interest. Bonds that have a very long maturity date also usually pay a higher interest rate.
What are the characteristics of stocks and bonds?
Stocks are equity instruments and can be considered as taking ownership of a company. While bonds are issued by all types of entities – including governments, corporations, nonprofit organizations, etc. – stocks, on the other hand, are issued by sole proprietors, partnerships, and corporations.
What are the three main components of a bond quizlet?
The three major components of a bond are face(par) value, maturity date, and coupon rate.
What are the 5 types of bonds?
There are five main types of bonds: Treasury, savings, agency, municipal, and corporate. Each type of bond has its own sellers, purposes, buyers, and levels of risk vs. return. If you want to take advantage of bonds, you can also buy securities that are based on bonds, such as bond mutual funds.
What are the advantages of bonds?
Bonds tend to be less volatile and less risky than stocks, and when held to maturity can offer more stable and consistent returns. Interest rates on bonds often tend to be higher than savings rates at banks, on CDs, or in money market accounts.
What are the 4 types of bonds in chemistry?
Four main bonding types are discussed here: ionic, covalent, metallic, and molecular. Hydrogen-bonded solids, such as ice, make up another category that is important in a few crystals.
What are the classification of bonds?
Bonds can be classified according to their maturity, which is the date when the company has to pay back the principal to investors. Maturities can be short term (less than three years), medium term (four to 10 years), or long term (more than 10 years).
Which are two features of a bond quizlet?
2 Characteristics of Bonds Flashcards | Quizlet....the amount and composition of existing debt.the stability of the issuers cash flow.the issuers ability to meet scheduled payments of interest and principal on its debt obligations.asset protection.management capability.
What are the types of bonds?
There are three primary types of bonding: ionic, covalent, and metallic.Ionic bonding.Covalent bonding.Metallic bonding.
What is a bond?
A bond is a fixed charge bearing long-term debt security issued by the government and non-government organisation to collect long-term debt capital in which borrower agrees to make payments of interest and principal on the specific dates to the holder of the bond instrument.There are different types of bonds which are introduced by the different organisation with the development of a market. As it is difficult to generalise the same characteristics of all types of the debt instrument. However, some common characteristics of all debt instruments are as follows;
What is bond rating?
Bond rating is an indicator of the creditworthiness of specific bond issues.These ratings are often interpreted as an indication of the relative likelihood of default on the Part of the bond issuers such as Aaa, Aa, A, Baa, Ba .cetc.
What is zero coupon bond?
Zero coupon bonds are always sold at discount and redeemed at par. Almost all bonds are issued with a finite time period. An investor has right to receive interest in each period up to maturity and right to receive principal at the end of the maturity period.
How is rupee interest calculated?
Rupee amount of interest is calculated on the basis of par value even if the bond is sold at premium or discount . Generally interest is paid on annual basis as well as semiannual basis. The borrower needs to pay fixed interest in each period up to maturity period.
What are the terms and conditions of a mortgage?
The terms and conditions may be par value, mode of interest payment, assets pledged as collateral, call provision, call premium, restrictions (covenants) placed by the creditors, rights and responsibilities of the lender and borrower etc.
What is the term for the maturity period of a bond?
The maturity period which is set at the time of bond issue is called original maturity. Of course, the effective maturity of a bond declines each year after it has been issued. The remaining maturity period until the bond matures is called time to maturity. Sometimes, however, perpetual bonds are issued without keeping maturity period.
What is speculative grade bond?
Speculative-grade bonds are bonds that have been assigned to one of the lower ratings (BB and below by Standard and Poor’s Ba and below by Moody’s). Some of these low rated securities are called, derisively junk bonds.
What are bond characteristics?
Bond characteristics outline the conditions of an investment, including its payment and interest terms. They will differ depending on the type of bond, issuer and investor’s preferences.
Why are bond characteristics important?
Bond characteristics are important because they outline the conditions of the investment and the payment and interest terms. While defining a bond is usually more straightforward, the characteristics of a particular bond can differ based on the type of bond, the issuer, and the investor’s preferences.
What is an unsecured debenture?
Most bonds have no specific security attached to them and really should be called “unsecured debentures.” This means that in a default situation, the bondholders rank equally with the other unsecured creditors of the company. Since governments do not pledge specific security, most government bonds are actually debentures. An unsecured debenture usually has a “negative pledge” which prevents the issuer from having assets secured ahead of that issue. Any bond issues that have senior issues ahead are “subordinate.”
What is mortgage bond?
A mortgage bond is different than a mortgage, which is a legal document registered against a particular real estate asset. A mortgage bond is a bond with a trust indenture that “secures” its collateral by way of a mortgage. A “first mortgage bond” has the first mortgage and senior claim on an asset or group of assets.
What is bond in legal sense?
What distinguishes between bonds in a legal sense is the collateral pledged and the legal rights to this collateral. Most bonds have no specific security attached to them and really should be called “unsecured debentures.”.
What is covenant bond?
Usually, a covenant will be a “financial covenant” which specifies that, for example, the issuer will maintain an interest coverage ratio over a certain level or a leverage ratio (debt/equity) under a specific level. These ratios are meant to constrain the issuer to financial prudence.
How does interest work on a bond?
Interest can be paid monthly, semi-annually or annually. This makes a difference to the compounding of the interest and will affect the trading of a bond. In North America, most bonds pay interest semi-annually. “Eurobonds,” which trade in Europe, pay interest annually. Asset-Backed Securities (ABS) pay interest monthly, reflecting the payment terms of the underlying mortgages and loans. The currency of payments is important. Some bonds have the coupon paid in one currency and the principal in another. Bonds that pay part of their principal before maturity are said to “amortize” their principal. That’s the case, for instance, with many mortgage bonds.
What are the characteristics of a bond?
All bonds have three characteristics that never change: 1. Face value: The principal portion of the loan, usually either $1,000 or $5,000. It's the amount you get back from the issuer on the day the bond matures. A bond's price, which is in constant flux, can be more or less than the face value. 2.
Why do bonds have higher yields?
Generally, the higher a bond's yield, the more credit- or interest-rate risk it carries. Just as borrowers pay more if their credit is bad -- or to borrow for a longer term -- you can get a higher yield from a riskier issuer, or if you are willing to lend your money long term.
How long does a bond maturity last?
A bond's price, which is in constant flux, can be more or less than the face value. 2. Maturity: The day the bond comes due. A 30-year bond, for example, comes due 30 years from the day it is issued. Most bonds mature within 30 years, but maturities can be as short as a year or even shorter.
What does it mean when you buy a bond?
If you're a borrower, you want the lowest possible interest rate. Your lender wants to charge you the highest possible rate. When you buy a bond, you're the lender, and you want a high interest rate -- or yield. Generally, the higher a bond's yield, the more credit- or interest-rate risk it carries.
What is short term bond?
Short-term bonds are usually called notes. 3. Coupon: Because bonds used to come with attached coupons that investors had to clip and redeem for their interest payments (now it's all done electronically), the size of the interest payment is still called the coupon.
What happens to the yield of a bond when the price rises?
When a bond's price rises, its yield drops, and vice versa. Here's why: The yield, in essence, is the annual coupon payment divided by the price. If the price -- the denominator -- gets bigger, the yield gets smaller. If the price gets smaller, the yield gets bigger.
How long do bonds last?
Bonds are issued by organizations generally for a period of more than one year to raise money by borrowing.
What is a subordinated bond?
Subordinated Bonds. Bonds which are given less priority as compared to other bonds of the company in cases of a close down are called subordinated bonds. In cases of liquidation, subordinated bonds are given less importance as compared to senior bonds which are paid first.
Why Investment is Important ?
Investment is essential as unavoidable circumstances can arise anytime and anywhere. One needs to invest money into something which would guarantee maximum returns with minimum risks in future. Money saved now will help you overcome tough times in the best possible way.
What is fixed rate bond?
In Fixed Rate Bonds, the interest remains fixed through out the tenure of the bond. Owing to a constant interest rate, fixed rate bonds are resistant to changes and fluctuations in the market.
Can you claim a bearer bond if it is stolen?
Bearer Bonds. Bearer Bonds do not carry the name of the bond holder and anyone who possesses the bond certificate can claim the amount. If the bond certificate gets stolen or misplaced by the bond holder, anyone else with the paper can claim the bond amount.
Do zero interest bonds pay regular interest?
Zero Interest Rate Bonds do not pay any regular interest to the investors. In such types of bonds, issuers only pay the principal amount to the bond holders.
Do bonds pay interest?
All bonds repay the principal amount after the maturity date; however some bonds do pay the interest along with the principal to the bond holders.
Why are bonds important?
Bonds are among the most important and widely traded of all securities. Investors value bonds and bond funds for their income and low risk which can balance potentially higher return but riskier stock purchases.
What is bonding in finance?
Identification. A bond is a debt instrument issued by a corporation or government to borrow money. Corporations issue bonds as an alternative to selling equity (stock) to raise capital. Governments use bonds to finance capital expenses such as schools or water and sewer systems, or to finance general expenditures.
How to calculate yield on municipal bonds?
The yield is the effective interest rate, and is calculated by dividing the coupon rate by the price actually paid for the bond, not the par value. The lower the price, the higher the yield will be. You can use bond yield calculating software online at financial websites like Morningstar.com. Generally, the yield on municipal bonds is lower because the coupon rate paid is normally tax-exempt. This offsets the lower yield, especially if you are in a high tax bracket.
Why is the yield on municipal bonds lower?
Generally, the yield on municipal bonds is lower because the coupon rate paid is normally tax-exempt. This offsets the lower yield, especially if you are in a high tax bracket.
How do bonds pay?
Regular bonds pay a fixed yearly sum (usually semiannually) called the coupon rate. Bonds are traded much as stocks are, and therefore the price varies. The most important influence on a bond’s price is the prevailing interest rate. If interest rates fall, the bond’s fixed coupon rate becomes more attractive to investors and the bond price may rise above the par value (this is called selling at a premium). If interest rates rise, the opposite is likely true. The coupon rate is less desirable and the bond price tends to fall (if the price drops below the par value, it’s selling at a discount).
What does it mean when a bond has a low rating?
If a bond has a low rating or has its rating lowered, it means that the possibility that the issuer may not be able to pay off the bond is higher.
What happens if you buy a bond at a premium?
One is that if you buy a bond at a premium and hold it to maturity; you will receive only the par value of the bond, resulting in an equity loss. The other is that some bonds have provisions that allow the issuer to redeem the bond early, which may work to your disadvantage if you bought it at a premium.
What Is a Bond?
It's yours and you get to share in the growth and also in the loss. On the other hand, a bond is a type of loan. When a company needs funds for any number of reasons, they may issue a bond to finance that loan. Much like a home mortgage, they ask for a certain amount of money for a fixed period of time. When that time is up, the company repays the bond in full. During that time the company pays the investor a set amount of interest, called the coupon, on set dates (often quarterly).
What is bond investment?
Bonds represent the debts of issuers, such as companies or governments. These debts are sliced up and sold to investors in smaller units. For example, a $1 million debt issue may be allocated to one-thousand $1,000 bonds. In general, bonds are considered to be more conservative investments than stocks, and are more senior to stocks if an issuer declares bankruptcy. Bonds also typically pay regular interest payments to investors, and return the full principal loaned when the bond matures. As a result, bond prices vary inversely with interest rates, falling when rates go up and vice-versa.
Why do investors prefer bonds over stocks?
This is why investors looking for safety and income often prefer bonds over stocks as they get closer to retirement. A bond's duration is its price sensitivity to changes in interest rates—as interest rates rise bond prices fall, and vice-versa. Duration can be calculated on a single bond or for an entire portfolio of bonds.
How many types of bond issuers are there?
There are four primary categories of bond issuers in the markets. However, you may also see foreign bonds issued by corporations and governments on some platforms.
Why is it important to have a diversified portfolio of stocks and bonds?
In fact having a diversified portfolio of stocks and bonds is advisable for investors of all ages and risk tolerance.
Why are bonds tax sheltered?
Bonds and Taxes. Because bonds pay a steady interest stream, called the coupon, owners of bonds have to pay regular income taxes on the funds received. For this reason, bonds are best kept in a tax sheltered account, like an IRA, to gain tax advantages not present in a standard brokerage account.
How to buy bonds?
You can often purchase bonds through your broker's website or call with the bond's unique ID number, called the CUSIP number, to get a quote and place a "buy" or "sell" order.
What is a government bond?
Governments bonds are bonds issued by a federal (foreign or local) government.
What is a corporate bond?
Corporate bonds. Corporate bonds are bonds issued by corporations. Their issue is regulated by the relevant corporate regulator such as the Securities & Exchange Commission in US. Corporations typically issue a document (called prospectus) outlining the purpose of the issue and offering an overview of its business and the issue is managed by ...
Why are bonds considered debt instruments?
Bonds are the most popular debt-instruments because they allow issuers to raise debt capital at a cost lower than the bank loans or other forms of debt financing. Each bond issue is governed by a contract called bond indenture which specifies the conditions and lists any covenants that the issuer must meet. Covenants are legal obligations that the ...
What is the maturity value of a bond?
The maturity value of the bond is the final cash flow of the bond (which represents the principal) that occurs at the maturity date. It typically equals the face value but can also be different depending on whether the bond has any call or put provision.
What is the term for periodic interest payments on bonds?
Most bonds pay periodic interest payments called coupon bonds. The coupon interest rate (also called the stated interest rate or nominal yield) is the annual percentage rate which is applied to the face value of the bond to calculate coupon payment.
What is bond yield?
Bond yield is the discount rate at which the present value of bond cash flows equals the market price of the bond. Some measures of bond yield include current yield, yield to maturity, yield to call, etc.
What is floating rate bond?
While most bonds have a fixed coupon rate, some bonds, called floating-rate bonds, have a coupon-rate linked to some other reference rate such a LIBOR.
How long does a corporate bond last?
corporate bond with maturities of five years or more.
What does higher bond rating mean?
the higher the bonds rating the lower its yield.
Can a bond issuer redeem before maturity date?
allows the issuer to redeem a bond issue before its maturity date either in hole or in part.