Bonds Essay

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Bonds Compiled by- Ayesha Bhagyashree Brita Pooja Introduction What are Bonds? Bonds are debt instruments that are issued by companies, municipalities and governments to raise funds for financing their capital expenditure. By purchasing a bond, an investor loans money for a fixed period of time at a predetermined interest rate. While the interest is paid to the bond holder at regular intervals, the principal amount is repaid at a later date, known as the maturity date. Both bonds and stocks are securities, but the principle difference between the two is that bond holders are lenders, while stockholders are the owners of the organization. In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed as the maturity date. A bond is a formal contract to repay borrowed money with interest at fixed intervals. Thus a bond is like a loan: the issuer is the borrower (debtor), the holder is the lender (creditor), and the coupon is the interest. Bonds provide the borrower with external funds to finance long-term investments, or, in the case of government bonds, to finance current expenditure. Bonds must be repaid at fixed intervals over a period of time. Important Terminologies 1. Face value or par value is the value of the bond (amount of principal) printed on the certificate and received at maturity. 2. Coupon Rate (also known as coupon, coupon yield, stated interest rate) is the interest rate printed on the bond certificate when the bond is

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