Question

1.Explain Bond Characteristics (general perspective).

Answer 1

Characteristics of Bonds

Bonds have a number of different Characteristics. All these below mentioned Characteristics play a role in determining the value of a bond and the extent to which it fits in your portfolio.

Par Value - is the amount of money a holder will get back once a bond matures. Par value means stated value or face value in finance and accounting. From this comes the expressions at par (at the par value), over par (over par value) and under par (under par value).

Sinking Funds - is a method by which an organization sets aside money over time to retire its indebtedness by repaying or purchasing outstanding loans and securities held against the entity

Market Price - The market price of a tradeable bond will be influenced – amongst other things – by the amounts, currency and timing of the interest payments and capital repayment due; the quality of the bond; and the available redemption yield of other comparable bonds which can be traded in the markets

Coupon Interest Rate - is the amount of interest that the bondholder will receive expressed as a percentage of the par value.

Yield - Yield to maturity is a more useful measure of the return of the bond, taking into account the current market price, the amount and timing of all remaining coupon payments, and of the repayment due on maturity.

callable bond - A callable bond allows the issuer to redeem the bond before the maturity date; this is likely to happen when interest rates go down.

Putability - Some bonds give the holder the right to force the issuer to repay the bond before the maturity date on the put dates. These are referred to as retractable or putable bonds. Put dates are the dates on which putable bonds can be redeemed early.