Bonds Essay

What is bond? Who or what issue bonds? Interest. Repayment. Types of bonds. The price of bonds. Price spread (kainų skirtumasInterest. The yield pick-up strategy.

Bonds is simply an IOU, where the issuer borrow money from an investor. Bonds are typically issued by a governments, public entities and companies.

The issuer pay interest on the bond. Furthermore, a bond also has a date at which the amount borrowed will be paid back to the investor.

The main reason why an issuer will choose to issue bond is that the amount of money the issuer needs to borrow is larger that the bank can borrow. Also, form many large companies, it makes sense to borrow directly from investors, instead of a bank. It is cheaper and more efficient.

Many companies that issue bonds have also issued stocks. The main difference between stocks and bonds is that bonds are debts and stocks are equity.

In case of bankruptcy, the bondholders would receive payments before the stockholders. But bondholders don’t have vote right and they don’t receive dividends.

A bond with a fixed coupon pays the same rate of interest throughout life at a fixed interval.

A bond with a floating coupon typically pays a fixed rate of interest that is on top of benchmark interest rate.