Notes On Bonds And Bonds

873 Words Mar 17th, 2015 4 Pages
a) What are bonds? What are their features and how are they traded?
Bonds are instrument of indebtedness of the bond issuer to the holder. A bond is can also be defined as a debt security under which conditions the issuer owes the holder debt which comes with conditions and there is an obligation to pay interest and repay the principal at a later date when the bond matures. Sometimes interest, maybe payable at fixed intervals, for example semiannual, monthly, annually. Bonds usually are negotiable and this simply means that ownership of the instrument can be transferred in the secondary market.
Features
• Set Maturity Dates — maturity dates for bonds are set and can range from one to 30 years. Short-term bonds can mature in 3 years or less while intermediate bonds matures in 10 years or less and long-term bonds mature in 10 years and more.
• Interest Payments — Depending on the bond structure, they can offer interest. Therefore fixed rate bonds offers fixed interest payments on a regular schedule for the life of the bond; Floating rate bonds have variable interest rates which are adjusted periodically; and, Zero coupon bonds which can be purchased a discounted price of face value at maturity. However this type of arrangement does not offer periodical interest rates.
• Principal Investment Repayment — when the bond reaches maturity the issuers are obligated to repay the full principal amount of a bond in a lump sum.
• Credit Ratings — One can access the default risk by…

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