Knowing Some Finer Things about a Bond
A bond can simply defined as an instrument created by a borrower while borrowing a debt of a particular amount of money for a particular time period.
How does a bond work?
The lender is the purchaser of the its . He receives interest from the borrower on particular dates until the maturity of the its when the principal amount is returned to him by the borrower.
While raising funds its , with attractive terms than a bank,
are also issued by the agencies, governments, companies and municipalities.
The amount of capital borrowed against the its known as face value of the its and maturity date is the period of that loan.
The borrower has to repay the loan regularly on a semi-annual or annual basis at annual coupon rate which is a certain percentage of the face value.
The coupon rate of the bond depends upon the duration of bond as well as the risk of borrower’s default.
Valuations of bonds
A bond can be traded like securities at a value based on its fixed payment stream, after it has been issued by a borrower.
Investors in the secondary market will purchase a itsbased on its interest rate at the time of sale.
It can also change the yield of the its .
The yield can be low if paid more than its fixed coupon rate and vice versa.
Written By : YOUSSEF J A ALMEER
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