Section 1, Introduction to Bonds

$1,000

Bonds are loans that are made in increments of…

Coupon Rate (Coupon)

The interest rate of a bond is referred to as the

coupon rate

is a predetermined fixed interest rate that is a percentage of the Par Value of the bond

Semi Annually (twice a year)

Interest on Bonds are paid

A coupon rate of 8% means an invester will be paid

80 per year (.08 x $1000) OR 40 semi annually

Points

Corporate Bonds are quoted in

maturity date of a bond

Is the date the Loan (Bond) comes due for repayment to the investor

A Bonds Principle is Generally repaid…

to the investor on the maturity date

A discount (Bond)

the Bonds Market Price is less than par value (<1,000)

Par Value (Bond)

price is the actual par value (=1,000)

A Premium

The bonds market price is more than the par value (>1,000)

Series Bonds

Have different issue dates and usually have the same Maturity Date

Term Bonds

An entire issue of bonds (Same Issue Date) that all have the same Maturity Date

Sinking Fund

Represents money set aside to redeem the company bonds or debentures

(Think SAFTY FUND)

Serial Bonds

have one (same) issue date and staggered (different) maturity dates schedule

Since Serial Bonds have varying maturities

Interest cost to the issuer would progressively go down of the life of the bonds as the short maturity bonds were retired

(fewer outstanding bonds means progressively less interest cost over the life of the entire issue)

Balloon Maturity

describes a bond issue with a large amount of the issue that comes due at or near the final maturity date

Funded Debt

Corporate debt that is due more than one year from the issued date and included corporate bonds, notes, and bank loans.
Does not include preferred stock, government bond, or municipal Bonds (THINK CORPORATE)

Registered Bonds

Bonds owned by investors whose names and addresses are recorded by the issuer; interest payments are made to the registered owners.

Bearer Bonds

Bonds that are NOT registered in the investors name and have interest coupons attached.

(Bonds are no longer issued in this form)

Principal Only Bonds

Bonds that are registered in the investors name, with interest coupons attached

(Bonds are no longer issued in this form)

Standard & Poor's, Moody's and Fitch

Bonds are rated by the following credit rating companies

Corporate, Government, and Municipal

Three basic categories of bonds

Yield

is the rate of return that an investor receives based on the price paid for the bond

If a bond is purchased at DISCOUNT

Yield > Coupon Rate

If a bond is purchased at PAR

Yield = Coupon Rate

If a bond is purchased at PREMIUM the Yield result would be

Yield < Coupon Rate