Features of bonds

The most important features of a bond are:

Nominal, principal or face amount — the issuer pays interest on this amount, and it is the amount which has to be paid back at the end. Redemption amount exist in some structured bonds which is different from the face amount and can be connected to performance of particular assets such as a stock or commodity index, FOREX or a fund.

Issue price — investors buy the bonds at this price when they are first issued, which will be approximately same value as the nominal amount. The issue price is the net proceeds that the issuer receives, and it is less than issuance fees.

Maturity date — the issuer has to repay the nominal amount on this date, the issuer has no more obligations to the bond holders after the maturity date as long as all payments have been made.


In the market for U.S. Treasury securities, There are three groups of bond maturities:

• Short term (bills): Short maturities up to one year;

• Medium term (notes): Medium maturities between one and ten years;

• Long term (bonds): Long maturities greater than ten years. 

Coupon — the interest rate paid to the bond holders by the issuer. This rate is typically fixed throughout the life of the bond. It can also be variant with a money market index, such as LIBOR, or it can be even more exotic.

Indentures and Covenants — the terms of a bond issue is established through an indenture which is a formal debt agreement, while covenants are the terms of such an agreement. High yield bonds the credit rating agencies rate these bonds below investment grade. Investors expect to earn a higher yield because these bonds are more risky than investment grade bonds. These bonds are also called junk bonds.

Coupon dates —the issuer pays the coupon to the bond holders on this date. Most bonds are semi-annual in the U.S. and also in the U.K. and Europe, so they pay a coupon every six months. Optionality: an embedded option may occasionally exist among a bond terms; meaning that it grants option-like features to the holder or the issuer:

Callability — an optional date on which the issuer has the right to repay the bond before the maturity date; these bonds are called callable bonds.

Putability — It is a bond given right to the holder so as to force the issuer to repay the bond before the maturity date on the put dates; (Note: "Putable" refers to an implicit put option; "Puttable" means that it may be putted.

Call dates and put dates— callable and putable bonds can be redeemed early on that date.

Convertible bond bondholder is allowed to exchange a bond through it to a number of shares of the issuer's common stock.

Exchangeable bond exchange to shares of a corporation other than the issuer is allowed through it.



ABOUT THE AUTHOR 

James is an expert in writing about legal forms and documents that may help you when your in the search of the right legal document. He writes many articles about forms ranging from, power of attorney forms, landlord tenant forms, and almost any legal form that your searching for. http://www.forms.com/

Investing In Different Bonds Is Smart

Its always a nice thing to stop and refresh your memory with what the different types of bonds are and how they work in simple terms.

Investing in bonds is very safe, and the returns are usually very good. There are four basic types of bonds available and they are sold through the Government, through corporations, state and local governments, and foreign governments.

The greatest thing about bonds is that you will get your initial investment back. This makes bonds the perfect investment vehicle for those who are new to investing, or for those who have a low risk tolerance.

The United States Government sells Treasury Bonds through the Treasury Department. You can purchase Treasury Bonds with maturity dates ranging from three months to thirty years.

Treasury bonds include Treasury Notes (T-Notes), Treasury Bills (T-Bills), and Treasury Bonds. All Treasury bonds are backed by the United States Government, and tax is only charged on the interest that the bonds earn.

Corporate bonds are sold through public securities markets. A corporate bond is essentially a company selling its debt. Corporate bonds usually have high interest rates, but they are a bit risky. If the company goes belly-up, the bond is worthless.

State and Local Governments also sell bonds. Unlike bonds issued by the federal government, these bonds usually have higher interest rates. This is because State and Local Governments can indeed go bankrupt – unlike the federal government.

State and Local Government bonds are free from income taxes – even on the interest. State and local taxes may also be waived. Tax-free Municipal Bonds are common State and Local Government Bonds.

Purchasing foreign bonds is actually very difficult, and is often done as part of a mutual fund. It is often very risky to invest in foreign countries. The safest type of bond to buy is one that is issued by the US Government.

The interest may be a bit lower, but again, there is little or no risk involved. For best results, when a bond reaches maturity, reinvest it into another bond.



ABOUT THE AUTHOR 

Terry Detty recommends learning about Short Selling Possible Trading and Penny Stock Trading Possibilities. We don’t need Penny Stock Market Frauds. http://timothysykes.com/2008/07/26/some-more-signs-of-pennystocking-success-aka-all-you-trading-frauds-are-going-down