Bonds and Their Characteristics

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What is a bond?

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is a long-term contract under which a borrower agrees to make payments of interest and principal on specific dates to the holders.

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Who issues bonds?

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Corporations and Government Agencies.

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What are Treasury Bonds?

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Generally called treasuries, they are issued by the government.

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What are Corporate Bonds?

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Bonds issued by business firms, exposed to default risk.

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What are Municipal Bonds?

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Bonds issued by state and local governments.

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What are Foreign Bonds?

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Bonds issued by a foreign government or a foreign corporation.

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What is Par Value?

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The stated face value of the bond.

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What is a Coupon Payment?

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The specified number of dollars of interest paid each year.

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What is a Fixed Rate Bond?

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A bond whose interest rate is fixed for its entire life.

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What is a Floating Rate Bond?

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A bond whose interest rate fluctuates with shifts in the general level of interest rates.