Question

·    What are the key characteristics common to all bonds and some key optional provisions that bonds may have?

Answer 1

Followings are the key characteristics common to all bonds ;

1. Face value;

This is the common characteristic of the bond because every type of bond has face value attached to it.

2. Coupon or yield;

It is normal returns to the bondholders made by the company. Hence we can say that coupon or yield is the timely returns on the invested amount.

3. Maturity;

Maturity refers to the end period of the bond. In other words we can say that maturity is the date at which bonds will be repaid.

4. Issuer;

Issuer is the party which issues these securities to the buyers. Hence we can say that in case of all types of bonds there will be an issuer.

Followings are the some key optional provisions that bonds may have;

1. Some bonds may be secured with some assets of the firm or company or some bonds may be unsecured. Hence secured bonds have guarantee for repayment due to backed by the assets of the firm. So this is not related to all bonds.

2. Some bonds may be in form of zero coupon while other can not be in this form. In case of zero coupon bonds, bonds are issued below face value and at maturity full face value is repaid to the investors.

3. Some bonds may have provision of convertibility wheras some bonds may have provision of non-convertible.

4. Some bonds have provision of floating interest rates but other do not have.

5. Some bonds have provision of participating in excess profits of the company whereas other do not have.

6. Some bondholders may have provision of extendability in the maturity period wheras other do not have.

7. Some bonds have provision of collable while other do not have.

8. Some bonds have provision of puttability while other do not have.