Answered: Describe the types of bonds.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 1MC

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Question

Describe the types of bonds.

Expert Solution

Step 1

A bond is a debt instruments used to raise funds in order to finance different projects or for business expansion. These are fixed income securities.

Step 2

There are different types of bonds, they are;

Step 3

i) Fixed Rate Bonds:
In these type of bonds, the interest remains fixed over the tenure of the bond. Fixed rate bonds are resistant to the market fluctuations as their interest remains fixed.
ii)Floating Rate Bonds
Here, the interest rate or coupons change as per the market reference rate.
iii)Zero coupon bond
These bonds do not pay interest or coupon payment. However, these bonds are issued at a discount to the face value.

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