Question

What information is contained in a bond indenture? What purpose does it serve?

Answer 1

Following information are contained in a bond indenture;

1. Main terms and conditions of bond.

2. Date of maturity of bond.

3. Interest rate on bond.

4. Timing of the interest payments.

5. Way of calculation of interest.

6. Rights of bondholders.

7. Detail about coupon rate on bond.

8. Par value of bond.

9. Detail about security ranking of bond.

10. Detail about security pledged if any etc.

Purpose of a bond indenture;

As we know that bond indenture is an agreement between issuer and investor. This bond indenture serves following objectives;

1. It helps in minimization of confusion between investors and issuers.

2. It helps in minimization of litigation between both parties because all terms and conditions are pre-defined.

3. It will help investors in making better investment decisions because on the basis of given information investors can take rational decisions.

4. Bond indenture also makes financial disclosure much better because as we know that proper financial disclosure means disclosure of all relevant information to the interested parties etc.