Bonds

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Submitted by usr01490 on Thu, 10/10/2019 - 09:42

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DEFINITION AND CHARACTERISTICS

A bond is a transferable security that takes the form of a loan to the issuer – a company (corporate bond) or a public body (government bond) – and therefore represents a medium- or long-term financial debt, and sometimes even a perpetual debt. A bond is a negotiable security and can be issued in two forms: registered or bearer. The principal is usually repaid on maturity.A bond is a transferable security that takes the form of a loan to the issuer – a company (corporate bond) or a public body (government bond) – and therefore represents a medium- or long-term financial debt, and sometimes even a perpetual debt. A bond is a negotiable security and can be issued in two forms: registered or bearer. The principal is usually repaid on maturity.

COUPON
In return for the loan, the lender receives an interest payment from the borrower: this is the coupon. Coupons are paid periodically, on set dates. A bond may come with a fixed-rate coupon or a variable coupon.

YIELD TO MATURITY
Yield to maturity is the total return anticipated on a bond if the bond is held until the end of its lifetime. It is the return that the investor can expect to receive. Its calculation takes into account coupon interest rates, the bond’s market price and the term to maturity.

ISSUE PRICE
The bond issue price may differ from its face value and can include an issue premium.

REDEMPTION PRICE
The redemption price is the value of the bond at the end of its lifetime (and may be equal, superior or inferior to the issue price). There may be a redemption premium, which is the difference between the redemption price and the issue price.

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Submitted by usr01490 on Thu, 10/10/2019 - 10:04

ADVANTAGES

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With bonds, the income is known in advance and can be planned.
As a general rule, bonds offer an attractive return for the level of risk.
Bonds are accessible to a large number of investors due to low entry thresholds.

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Submitted by usr01490 on Thu, 10/10/2019 - 10:05

DISADVANTAGES

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Repayment of the principal is only guaranteed if the issuer remains solvent.
The price of a bond fluctuates during its lifetime.
The return on bonds is usually lower than that on other financial instruments, especially during periods of low interest rates.
The lack of demand for a security on the secondary market can cause a liquidity problem, i. e. it can be difficult to sell the securities under optimal conditions.

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Submitted by usr01490 on Thu, 10/10/2019 - 10:10

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