What is a bond? Bond is a long term contract under which a borrower (issuer) agrees to make payments on interest and principal on specific dates to the
... [Show More] holder of the bond (bondholder). Bond represents a long-term debt instrument that can be transferred from one bondholder to another. Bonds are issued by private corporations and government agencies that are looking for long term debt capital. Although bonds carry some common characteristics, they are group in several ways based on its contractual features:
* Issuer - represents the party who need fund requirements. They are the borrower (debtor) or fund user. Corporate bonds are issued by private corporations like San Miguel Corp., Ayala Investment, SM Holdings and other private corporations. Government bonds are issued by government agencies or institutions. Example of these govenment bonds Treasury Notes or bills issued by the Bureau of Treasury, and bonds issued different LGUs
* Par Value or Face Value - this is the stated value of the bond which represents the principal amount to be paid by the issuer.The bond maybe acquired or sold higher than its par value which is at Premium or below it par value which is at Discount
* Coupon Rate of Interest - stated interest rate (generally fixed) paid by the issuer annually, semi-annual or quarterly. Most bond carries a fixed rate of interest, so they are called Coupon bonds. Some bonds are issued without interest and they are known as Zero-Coupon bond.
* Collateral or Security - most bonds have collateral or attached to the bond like properties or assets of the issuing corporation to act as security for the bond issuance. Examples of these are the Corporate Mortgage bonds or Corporate bonds and if securities of the issuing company are used as security of bond issuance, the bond is known as Collateral Trust bond. However there are companies that issue bond without collateral, and this is called Debenture Bond.
* Maturity date - maturity features is the specific date that the bonds will be redeem or paid by the issuing corporation. Some bonds have provisions that allows the issuer to pay the bond early and they are known as Callable bonds. [Show Less]