What is the difference between a callable bond and a convertible bond? The time remaining on a bond till maturity is called tenor. Although short and long term bonds share the same basic structure (with the exception of zero-coupon bonds) short-term bonds (with maturities of less than a year and often less than 90 days) behave a little differently. Interest accrues until the bond reaches its full face value at maturity. The Importance of Bond Characteristics.

Features of Bonds.
US treasury securities (T-bill, treasury notes and treasury bonds) are theoretically risk-free. Basic Characteristics. While the terms of different bonds vary a great deal from each other, they all have certain basic features as outlined below: Each bond has a par value (which is also called its face value or principal).

Governments use bonds to finance capital expenses such as schools or water and sewer systems, or to finance general expenditures. Because bonds must be paid off at face value at maturity, they normally carry far less risk than stocks, but also do not offer the opportunity for equity growth. Typically, corporations offer an asset such a plant or inventories as a collateral to be liquidated to pay back the bondholders in case of default by the issuer), in which case the bonds are called mortgage bonds.

Imagine you have come into a windfall of $23,000 that you want to invest. The par value typically differs from the issue price of the bond because due to a difference between the coupon rate and required rate of return, a bond may sell initially at a discount or premium. In most cases, it is also the amount which the issuer must pay back to the bond-holder at the maturity date.
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. Further, the coupon interest rate may be fixed or variable i.e. indexed to some underlying interest benchmark such as LIBOR, etc.

A bond is generally a form of debt which the investors pay to the issuers for a defined time frame.

They are typically issued to finance an infrastructure project and the interest is paid out of the revenue of the project, in which case they are called revenue bonds. We hope you like the work that has been done, and if you have any suggestions, your feedback is highly valuable.

Where the bonds are issued by a state or local government, they are called municipal bonds (or munis for short).

Bonds are among the most important and widely traded of all securities.

Different bonds have different coupon frequency, the number of coupon payments per year.

Governments bonds are bonds issued by a federal (foreign or local) government.

UK government bonds are called gilts. 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.

Describe the basic features and characteristics of bonds. Further, different bond issues have different ranking when it comes to their entitlement to receive liquidation proceeds if the issuer defaults. Treasury bonds that are indexed to inflation are called treasury-inflation protected securities (or TIPS). XPLAIND.com is a free educational website; of students, by students, and for students. Bonds generally have a fixed maturity date. Bonds are among the most important and widely traded of all securities. Two other factors should be kept in mind.

Bonds are classified into different types depending on primarily on their issuer, coupon payment structure, existence of any embedded options and their bond rating, etc.

Like zero-coupon bonds they are sold at a discount. Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. This offsets the lower yield, especially if you are in a high tax bracket. 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). Bonds have a maturity date that can be anything up to 30 years (and occasionally even longer). One is the “zero-coupon” bond. Where no collateral is offered against a bond, it is called a debenture. Each bond has a par value (which is also called its face value or principal).

US government bonds are called treasury notes (when the maturity is more than one year but less than ten) and treasury bonds (when the maturity is more than 10 years). All municipal bonds other than the revenue bonds are called general-obligation bonds because the state’s obligation to pay back the loan is general and not limited to revenue of any project. It is principal amount at which the coupon payment is calculated. Bonds issued by the government are considered as risk-free while those issued by the corporates are exposed to risk. While the terms of different bonds vary a great deal from each other, they all have certain basic features as outlined below: Par Value. Corporate and municipal bonds *those issued by states or local governments) typically have par values of $1000 or $5000. Bonds are traded much as stocks are, and therefore the price varies. While a standard bond pays periodic interest, there are bonds that do no pay any periodic coupon payments instead all their return comes from the difference in their initial issue price and final redemption value at maturity. The other is the well-known US savings bond.

The best bonds are those with top ratings from bond ratings services like Moody’s (moodys.com). When the bond matures, the issuer redeems the bond at its par (face) value. Would you use a full service broker or a discount broker?

Bonds represent the debts of issuers, such as companies or governments. Bonds are financial instruments issued by corporations or governments (called the issuer) to investors (called the bondholders) representing the amount of debt due to the bondholders by the issuer.

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). Regular bonds pay a fixed yearly sum (usually semiannually) called the coupon rate. Convertible bonds are bonds that can be converted to the common stock of the corportion issuing them at the option of the bondholder. Their issue is regulated by the relevant corporate regulator such as the Securities & Exchange Commission in US.

Investors value bonds and bond funds for their income and low risk which can balance potentially higher return but riskier stock purchases. Each bond issue is governed by a contract called bond indenture which specifies the conditions and lists any covenants that the issuer must meet. Despite the difference in terminology, they are both bonds. by Obaidullah Jan, ACA, CFA and last modified on Jun 11, 2019Studying for CFA® Program?

In most cases, the maturity date is fixed but in some bonds such as callable, putable or convertible bonds, the maturity date is contingent upon occurrence of some event. Par value refers to the value stated on the face of the bond, which shows the amount which the company or government body promises to pay at the time of maturity. Investors value bonds and bond funds for their income and low risk which can balance potentially higher return but riskier stock purchases. These are the type of bonds bought and sold by money market funds and are used by corporations and governments to raise cash for immediate needs. 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 investment bankers. Covenants are legal obligations that the bond indenture imposes on the issuer regarding actions it must take and actions it must avoid.

Investors speak of the yield of a bond, rather than an interest rate. Such bonds are called zero-coupon bonds (also called discount bonds or deep discount bonds). Two other types of bonds deserve mention.

Bonds are the investment of choice for persons seeking safety and income over equity growth (as a major part of a portfolio after retirement, for example). Access notes and question bank for CFA® Level 1 authored by me at AlphaBetaPrep.com. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved.

You can use bond yield calculating software online at financial websites like Morningstar.com. If you are a beginning investor you should learn the characteristics of bonds and how this investment tool can diversify and strengthen your portfolio. A bond is a debt instrument issued by a corporation or government to borrow money. He became a member of the Society of Professional Journalists in 2009. 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.

Corporations issue bonds as an alternative to selling equity (stock) to raise capital. 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.

If you are a beginning investor you should learn the characteristics of bonds … 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.

The maturity date of a bond is the date on which the issuer pays back the maturity value of the bond (which is typically equal to the face value) to the bondholder. However, bonds are not entirely without risk. Adkins holds master's degrees in history and sociology from Georgia State University. Let's connect.

Standard bonds have a fixed maturity date but some bonds, called callable bonds, give the issuer the option to retire the bonds prior to maturity date; and some bonds, called putable bonds, give the bondholder the option to redeem their bonds prior to maturity.

If interest rates rise, the opposite is likely true. US Treasury bonds can have par values of $10,000 or more.

Corporate bonds are bonds issued by corporations.

Characteristics of a Bond. Savings bonds are non-negotiable (they cannot be bought and sold like other types of bonds). He writes about business, personal finance and careers. Due to their short duration, they rarely change much in price, and are redeemed at maturity for the full par value in any case. Start studying Chapter 2 - Basic Characteristics of Bonds. 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.

The lower the price, the higher the yield will be. A zero-coupon bond is sold at a large discount off the face value and does not pay interest. 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. 2. Use the Internet to investigate Bond characteristics are important because they outline the conditions of the investment and the payment and interest terms. Learn vocabulary, terms, and more with flashcards, games, and other study tools.


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