Features Of A Bond

a.A bond is a debt instrument which the government or an institution may issue (e.g a bank) to have direct inflow of money. Basically, it’s a security for which the issuer is obliged to pay at the end of the contract, the nominal value. In the case of bonds with a coupon payment, the payments are made at regular predetermined intervals. Therefore, a bond is simply a loan, where the issuer is the debtor and the holder is the lender, while the coupon (if exists) is the interest. The loan is alleging from the issuer of the bond through capital markets, rather than through bank intermediation.

Bond Features:

à Face Value: Is the initial security amount that the issuer promises to repay at maturity of the bond.

à Price: The
…show more content…
à Maturity Date: Is the date that the bond matures.

à Coupon: The rate by which interest is calculated for the bond. The coupon is paid at a certain time period (usually month, quarter, semester, and year) and is expressed as a percentage of 100% percent of the face value of the bond. The coupon, which is specified when the bond is issued, it may be fixed or floating.

à Accrued Interest: Is the interest owed by the issuer but is not yet payable to the bond holder. Accrued interest is the accumulation between the last date of coupon payment and the date of bond purchases by the bondholder.

The purchase or the sale of a bond cannot only be done at the issue date (primary market). The bonds are traded freely on the stock exchanges (secondary market) and their price
…show more content…
They represent a share in the share capital of a company. There are two basic classes of shares: common and preferred shares.

The common share is the simplest form of ownership in a company and gives the holder the right to vote and the right to claim on the residual value of the company on dissolution. Therefore, the claim arising from a common stock following the claims of all other parties entitled to be compensated (tax authorities, employees, bondholders, etc.). The common share also gives the holder the right to dividend, on each dividend distribution declared by the board of the company. Common shares tend to reflect more directly on the value of a company 's activities, compared to bonds and other types of negotiable securities.

The preference share gives the holder the right to dividend payment with priority over an equivalent common share. Furthermore, the claims of the preferred shares on the company 's residual value upon liquidation have priority over common stock. The trading of listed shares is available on stock exchanges worldwide.


Related Documents

Related Topics