Template:Bond - layman: Difference between revisions
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A [[bond]] is like a corporate IOU. To buy a bond is to lend money to the issuing company. In return the company issues you a bond — in the good old days, a security-printed certificate containing the terms of the loan to the company. | A [[bond]] is a form of [[loan]]. It is like a corporate IOU. To buy a bond is to lend money to the issuing company. In return the company issues you a bond — in the good old days, a security-printed certificate containing the terms of the loan to the company. | ||
The company will pay principal and interest to the “bearer” of a bond — that is, whoever holds it, and who turns up on the correct payment date and presents the bond to the issuer for redemption. | '''Repayment to [[bearer]]''': The company will pay principal and interest to the “bearer” of a bond — that is, whoever holds it, and who turns up on the correct payment date and presents the bond to the issuer for redemption. | ||
If interest is payable, the bond will have coupons — literally, little perforated tabs that you can tear off and present separately — for each interest payment. Hence the expression "[[coupon]]" has become synonymous in modern finance with [[interest]]. | '''[[Interest coupons]]''': If interest is payable, the bond will have coupons — literally, little perforated tabs that you can tear off and present separately — for each interest payment. Hence the expression "[[coupon]]" has become synonymous in modern finance with [[interest]]. | ||
Nowadays, bonds all trade electronically, so there are no certificates or coupons, and everything happens in the blink of an eye. but the principal is the same. | '''[[Transferability]]''': Because the issuer pays whoever holds the bond, this means the bond is [[negotiable]] — any bondholder can sell its bond to another investor without the issuer’s permission or knowledge. The issuer doesn't care: it has to redeem the same number of bonds, whoever holds them. | ||
'''Electronic trading''': Nowadays, bonds all trade electronically, so there are no certificates or coupons, and everything happens in the blink of an eye. but the principal is the same. | |||
Revision as of 14:26, 16 March 2018
A bond is a form of loan. It is like a corporate IOU. To buy a bond is to lend money to the issuing company. In return the company issues you a bond — in the good old days, a security-printed certificate containing the terms of the loan to the company.
Repayment to bearer: The company will pay principal and interest to the “bearer” of a bond — that is, whoever holds it, and who turns up on the correct payment date and presents the bond to the issuer for redemption.
Interest coupons: If interest is payable, the bond will have coupons — literally, little perforated tabs that you can tear off and present separately — for each interest payment. Hence the expression "coupon" has become synonymous in modern finance with interest.
Transferability: Because the issuer pays whoever holds the bond, this means the bond is negotiable — any bondholder can sell its bond to another investor without the issuer’s permission or knowledge. The issuer doesn't care: it has to redeem the same number of bonds, whoever holds them.
Electronic trading: Nowadays, bonds all trade electronically, so there are no certificates or coupons, and everything happens in the blink of an eye. but the principal is the same.