![]() Once issued, bonds can be bought and sold on the STOCK MARKET. Purchasers of bonds include private individuals, commercial banks and institutional investors (pension funds, etc.) who hold them as a form of portfolio investment. They are issued in units of a fixed (nominal) face value and bear a fixed (nominal) rate of interest. Bonds are, typically issued for a set number of years (often 10 years plus), being repayable on maturity. bond a FINANCIAL SECURITY issued by a company or by the government as a means of borrowing long-term funds. Along with cash and stocks, bonds are one of the basic types of assets.ĭictionary of Financial Terms. Other common types include callable bonds, which allow the issuer to repay the principal prior to maturity, depriving the bondholder of future coupons, and floating rate notes, which carry an interest rate that changes from time to time according to some benchmark. The most basic division is the one between corporate bonds, which are issued by private companies, and government bonds such as Treasuries or municipal bonds. There are several different kinds of bonds. The higher the interest rate on a bond is, the more risky it is likely to be. The interest rates on Treasury securities are considered a benchmark for interest rates on other debt in the United States. Generally speaking, a bond is tradable though some, such as savings bonds, are not. In addition, the bondholder usually has the right to receive coupons or payments on the bond's interest. In exchange, the bondholder receives the principal amount back on a maturity date stated in the indenture, which is the agreement governing a bond's terms. When a company or government issues a bond, it borrows money from the bondholders it then uses the money to invest in its operations. " How Bonds Affect Mortgage Rates.A security representing the debt of the company or government issuing it. " What Is a Yield Curve?"įinancial Industry Regulatory Authority. " Investor Bulletin Interest Rate Risk-When Interest Rates Go up, Prices of Fixed-Rate Bonds Fall," Pages 1-3.įidelity Investments. " What Is a Bond? A Way to Get Income & Stability." " Treasury Inflation-Protected Securities (TIPS)." " What Makes Treasury Bill Rates Rise and Fall? What Effect Does the Economy Have on T-Bill Rates?" " Everything You Need to Know About Bonds."įederal Reserve Bank of San Francisco. Yield: The discount rate that links the bond's cash flows to its current dollar price.Ĭalifornia State Treasurer.Price: As a bond's price fluctuates, the price is described relative to the original par value, or face value at which it was sold the bond is referred to as trading above par value or below par value.Keep in mind that this changes the amount of money the issuer will pay you as the bondholder, based on the current market price of the bond. It is possible to buy and sell a bond in the open market prior to its maturity date. Maturity date: The date on which you can expect to have your bond's principal repaid.Issue date: The issue date is the date on which a bond is issued and begins to accrue interest.These interest payments are usually made semiannually. This is the annual interest rate paid by the bond issuer, based on the bond’s face value. Coupon rate: The nominal or stated rate of interest on a fixed-income security, like a bond.You’ll find the par value printed on the stock or bond certificate. Unlike market value, face value doesn’t change. ![]()
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