What Are Bonds?

In the world of finance the term Bond refers to a debt security where the authorized person who issued the bond agrees to owe the holder of the debt and while it may depend on the type of bond you have, the borrower must pay interest to repay or renew the bond at a later date or when the bond matures. A bond is considered to be a contract to repay money borrowed on the loan with a fixed interest rate. For example, if someone you know gets arrested and they need a bond to get out. You would to a bail bondsman and they would lend you the bond to get your friend from jail. You would have to pay the bond under the contract, which would be if the person failed to show up for court.

When it comes to Bonds and Stocks, they are both considered to be securities; a security is a negotiable financial instrument that represents ant financial value. However there is a difference, and that difference is that the capital stockholder has an equity stake in the company since they are owners and the bondholders have a creditor style stake in the company since they are considered to be lenders.

Bonds can be issued by public authorities, credit institutions and supranational institutions in main markets. With so many different ways top get bonds the most common way would be through an underwriter. Underwriting is when a large financial provider such as a bank or insurer assesses the eligibility of what the customer has to offer in order to receive the underwriting. Some examples of eligibility would include equity capital, insurance, mortgage or how much credit you have.

When taking on a bond you should understand that there are some features that you want to make sure are included in the bond. Here are a few things to look out for:

Nominal or Face Amount

This is the amount on which the insurer will pay interest on and how much must be paid at the end of the terms.

Maturity Date

This would be the date on the bond where the issuer of the bond would be expecting payment. Once the maturity date has passed on a bond the issuer of the bond has no obligation to the borrower of the bond

Issue Price

This is the price by which the investors purchase the bonds when they are first given out, the issue price and the nominal price in most cases will be exactly the same

Coupon

This is the interest rate that the issuer pays to the bondholders. This is usually a fixed rate through the life of the bond.

There are so many different bonds available, everything from Fixed Rate Bonds, Floating Rate Bonds, Zero Coupon Binds and Inflation Linked Bonds just to name a few. If you are in need of a bond contact your local investment house or your banking institution they can help you or at least point you in the right direction.