presentation on bonds...its types,method and bond terminologies.
How bond work?
Types of bonds
BOND is a debt instrument in which an
investor loans money to an entity (corporate
or governmental) that borrows the fund for a
defined period of time at a fixed interest rate.
Prize bond is a lottery bond a non interest
bearing security issued to public.
• Bond is a debt security in which authorized
issuer owes the holders a debt.
• It is a formal contact to repay borrowed
money with interest at fixed intervals.
• Plays an important role in mobilization of
FACE VALUE: The price of a bond when first
COUPON RATE: The periodic interest
payments promised to bondholders are a
fixed percentage of bonds face value OR
simply the interest rate.
MATURITY: The time until the principal is
scheduled to be repaid.
CALL PROVISIONS: some bonds contain a
provision which enables the issuer to buy the
bond back from the bondholder at a pre-
PUT PROVISION: Some bonds contain a
provision due to which the buyer can sell the
bond at a pre-specified price before its
BONDS ISSUED ( GOVT/
FOR A SPECIFIED
DATE ( depend)
TREASURY BONDS: issued by US govt. to finance
its deficits. These are free of default risk.
CORPORATE BONDS: Issued by corporation.
There is a high risk because of a company
• CONVERTIBLE BONDS: These bonds can be
converted into a certain number of shares of the same
company at some fixed ratio in a particular date.
• CALLABLE BONDS: contain a provision that gives
the issuer the right to call back the bond before its
SECURED BONDS: have specific assets of the
issuer pledged as collateral for the bond. A
bond can be secured by real estate or other
UNSECURED BONDS: are not backed by any
specific asset of issuer. More easily issued by
a company that is financially sound.
GOVERNMENT BONDS: issued by govt. in its own
currency risk free bonds. When issued in
foreign currency then a referred as
TERM BONDS: That mature at a single
specified future date.
SERIAL BONDS: Bonds that mature in
INFLATION LINKED BONDS: It provides
protection against inflation and is designed
to cut out the inflation risk of an investment.
EXTENDIBLE & RETRACTABLE BONDS: Have no
fixed maturity date. Extendible can be
extended on demand of buyer while in
retractable the date can be reduced.
ZERO COUPON BONDS: a type of bond that
makes no coupon payments but instead is
issued at a considerable discount to par
value.e.g: zero coupon bond with 1000$ par
value and 600$ to 10 years maturity date.
You’d be paying 600$today for a bond worth
1000 in 10 years.(longer the maturity period
lesser would be the issue price vice versa).
Apart from the benefits of investment in
bonds there are also some risks subjected to
bonds such as :
• inflation risk, interest rate risk, foreign
exchange risk and call back risk etc