Bond is a debt security that reflects the debtor obligation of the issuer to the owner of the security.
Bonds are divided according to maturity:
- Short-term bonds - with a maturity shorter than one year; they are traded on the money market. These include:
- Treasury bills
- Commercial papers
- Deposit Certificates
-
Medium and long-term bonds - with a maturity longer than one year; they are traded on the stock market. These include:
- Mortgage bonds
- Obligations
Forms of bonds:
- Fixed Rate Bond
- Floating Rate Note
- Zero-coupon bonds
- Perpetual Annuity (Consol)
- Callable bonds
- Convertible bonds
- Warrant bonds
- Government bonds, treasury bills
- Municipal bonds
- Bank bonds
- Mortgage bonds
- Corporate bonds
- Eurobonds
- Junk Bonds
Valuation of bonds is based on the principles of net present value.
Use of bonds in practice: Subject as an issuer can use the bonds to raise additional funds. On the other hand, bonds can be used as a financial investment, if we want to evaluate the available financial resources. Investing in bonds is a relatively safe type of investment.
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