Template:Bond - layman: Difference between revisions
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A [[bond]] is a form of [[loan]]. It is like a corporate IOU. | [[File:Bond certificate.jpg|thumb|A bond certificate with [[coupon]]s on the right]] | ||
A [[bond]] (also called a [[note]] or an [[MTN]]) is a form of [[loan]]. It is like a corporate [[IOU]]. Instead of taking one big [[loan]] from a [[bank]], a company issues lots of little loans, in the form of bonds to investors. To buy a bond is to lend money to the issuing company, who must repay that money by “redeeming” the bond its stated [[maturity date]]. In the good old days, bonds were security-printed certificates with the loan [[terms and conditions]] printed on them. | |||
'''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. | '''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. | ||
Revision as of 15:47, 16 March 2018
A bond (also called a note or an MTN) is a form of loan. It is like a corporate IOU. Instead of taking one big loan from a bank, a company issues lots of little loans, in the form of bonds to investors. To buy a bond is to lend money to the issuing company, who must repay that money by “redeeming” the bond its stated maturity date. In the good old days, bonds were security-printed certificates with the loan terms and conditions printed on them.
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.