Docstoc

bond

Document Sample
bond Powered By Docstoc
					Definition Of Bond




Bonds

 can be defined as debt instruments yielding a fixed rate of return over a set period of time that can be traded in
the market like any other security.

Bonds

 are essentially a loan the issuing organization receives from the investor who in turn becomes the creditor.
Bonds typically have a maturity period during which they cannot be normally traded for full value unless specified
otherwise. The rate of return offered by bonds will be lower compared to stocks due to bonds offering security
against turbulent markets.

Returns on

bonds

 are disbursed periodically, bi-annually, tri-annually, or quarterly, depending on the issuer's offer By comparison,
a stock is a share of the issuing organization's ownership equity, which the investor owns when he buys it. The
difference in the respective returns of bonds and stocks are a matter of investment goals. Bonds yield smaller
returns     for   very     low    risk     while     stocks     offer    higher   returns     for     greater  risk.

Among all the bonds issued by governments around the world, US Treasury Bonds are considered to be the
safest and strongest. This has been evidenced by the massive investment in US Treasury Bonds by the
government     of   China,    as   well   as   many    other    governments    around    the    world.

Bonds are issued through the process of underwriting. During the process of underwriting, one or many banks,
create a syndicate and buy an entire issue of the bond from an issuer. Then the bonds are again resold to the
investors.

There                 are                 different                types                 of                 Bonds:

Secured                                                                                                    Bond
Such bonds attach the guarantee of fixed assets to the value of the bond. This gives the investor a guarantee
that if the issuing organization defaults in the payment of principal and interest when they are due the property
attached        as     a       guarantee       could    be       taken      over     by      the     bondholder.

Callable                                                                                         Bond
Certain bonds can be redeemed before maturity by paying a penalty or an early redemption charge. Such
conditions      are      predetermined      at      the      time       of       the      transaction.

Commercial                                                                                                   paper
An investor may agree to lend credit to an organization for a short period of time in return for a mutually agreed
rate of interest. Most commercial papers are negotiable instruments.

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:22
posted:2/26/2011
language:English
pages:1