Question

2. Discuss the implications of owning a bond. In this light you may want to discuss more on Face Value (Par Value) Coupon Rate and Maturity.

Answer 1

Bond Definition/Overview of Bonds: Bonds are securitized as units of corporate debt issued by companies and trading assets.

-> They are traditionally referred to as fixed income instruments because the bonds pay a fixed interest rate to the creditor

-> Owners of these are called as debt holders or creditors of the issuers.

-> These bond details include the closing date for the principal of the loan to be paid to the bond owner and usually the terms of the variable or fixed interest payments made by the borrower.

There are many advantages as well as disadvantages for these bonds. There are many types of bonds available now. for example Convertible bonds,Zero coupon bonds etc..,

Face Value of the Bond: It is a financial term used to describe the nominal or dollar value of a security,as stated by the issuer. For stocks, the face value is the actual price of the stock, listed on the certificate. For bonds,this is the amount paid to the holder at maturity,which is usually like $1000.It is also called as par value

Coupon Rate: The coupon rate is the yield paid by fixed income security is simply annual coupon payments paid by the issuer with respect to face or value of the bond. Coupon rate or coupon payment , is a amount paid on the date of issuance. This yield changes when the value of the bond changes, so that the yield on the bond matures.

Maturity: It is the end of the life of a transaction or financial instrument, after which it must be renewed, or it may not exist. The term is commonly used for fixed income instruments such as deposits, foreign exchange spot and forward transactions, interest rate and commodity swaps,options, loans and bonds. They are sometimes converted by bonus rates as part of promotions.