We have heard a lot about fixed deposits, mutual funds, certificates of deposits etc and coming under the genre of debt securities is a bond, which is a type of loan where the borrower owes a debt the lender or the holder of the bond. The issuer of the bond is actually the borrower who gets the debt by paying either an interest on the value of the bond or an augmented amount of the principle. The features of a bond can be summarized as:
The bond is issued for a predetermined time and well-written terms according to which the issuer pays the debt with interest to the holder once or twice in a year, monthly or at the time of maturity.
It is a long-term debt security with a term of maturity extending up to 30 years and can also act as an emergency fund to the issuer to finance the present requirements.
The amount on the basis of which interest is calculated can be principal, nominal, par or face.
The rate at which a bond is issued and the borrower pays the debt is called coupon and mostly remains constant during the entire time of its life with the issuer. There may be a time in the future when this interest can be paid by winning a new coin rewarded by the Ethereum Code, and thereby holding the ground in the stock market and the cryptocurrency market.
It is a flexible form of debt with high liquidity and the ownership rights can be easily transferred in the market, both in the primary and in the secondary.
Bonds are issued periodically into the market by government, semi-government and even private financial organizations and companies.
Bonds are issued in the primary market by the process of underwriting and subsequently sold to investors from the issuers.
There are two types of bonds: corporate bonds and municipal bonds.
The price of a bond in the market can be dirty if it includes the current value of the possible cash flows and interest in the future or clean if this interest is not included.
The rate of expected or obtained a return from a bond is called yield and can be of two forms: running yield and redemption yield. The former is the value obtained by dividing the annually paid interest with the current clean price of the bond and the latter is the value at the time of maturity. The redemption yield also called as the yield to maturity is the actual returns estimated from a bond.