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.