Bonds are debt instruments where an investor loans money to an entity for a set period of time at a fixed or variable interest rate. There are various types of bonds including corporate bonds issued by companies, municipal bonds issued by state and local governments, and U.S. Treasury bonds issued by the federal government. Bonds can have different features such as being callable or convertible. They can also be secured by specific assets or unsecured. Bond issuers look to bonds as a way to raise funds for a period of time while investors seek bonds as a conservative way to earn income. However, bonds carry various risks including interest rate risk, credit risk, and liquidity risk.

1. Debt instruments
By:-
Sowmya reddy &
Ch.swetha

2. BONDS:-
“A bond is a debt investment in which an
investor loans money to an entity which
borrows the funds for a definite period of
time at a variable or fixed interest rate”.

4. Bond terminology:-
Face value:-
The price of a bond when first issued.
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.

5. Call provisions:-
Some bonds contain a provision
which enables the issuer to buy the bond back from
the bondholder at a pre-specified price.
Put provision:-
Some bonds contain a provision
due to which the buyer can sell the bond at a pre-
specified price before its maturity date.

6. Bond issuers:-
There are 3 main categories of bonds:-
1) Corporate bonds are issued by companies. They
are high risk than government bonds.
2) Municipal bonds are issued by states and
municipalities. They can offer tax-free coupon
income for residents of those municipalities.
3) U.S. Treasury bonds (more than1-10years to
maturity),where as bills ( less than 1year
maturity) are collectively refered to as simply
“Treasuries”.

7. Varieties of bonds:-
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:-
It contains a provision that gives
the issuer the right to call back the bond before its
maturity date.
Secured bonds:-
These have specific assets of the
issuer pledged as collateral for the bond. It can be
issued by real estate or other assets.

8. Unsecured bonds:-
These bonds are not backed by any
specific asset of issuer. More easily issued by a
company that is financially sound.
Government bonds:-
It issued by govt. in its own
currency. When issued in foreign currency then it a
referred as sovereign bonds.
Term bonds:-
It will mature at a single specified
future date.
Serial bonds:-
Bonds that mature in installments.

9. Extendible and retractable bonds:-
These bonds have no fixed
maturity date. It can be extended on demand of buyer while in
retractable the date can be reduced.
Zero- coupon bonds:-
It makes no coupon payments but instead is
issued at a considerable discount to par value.
The maturity date on zero coupon bonds are usually long-term.
The price of this bond is calculated by using this formula:-

10. Floating rate bonds:-
Bonds whose interest amount fluctuates in
step with the market interest rates, or some other external
measures.
The prices remains relatively stable because neither a capital
gain nor a capital loss occurs as market interest rates go up or
down.
Plain vanilla bonds:-
It is a standard type of bonds, one with a
simple expiration date and strike price and additional features.
With an exotic option, such as a knock-in-option, an additional
contingency is added so that option only becomes active once
the underlying stock hits a set price point.

11. Other bonds are:-
Yankee bonds :- U.S dollar dominated bond
Bulldog bond:- London dollar dominated bond
Lioncity bond:- Singapore dollar dominated bond
Masala bonds:- Indian dollar dominated bond
Masala bonds:-
it was 1st issued by world bank by
IFC(International Finance Corporation) in November
2014 and raised 1000crore for infrastructure
projects in India.

12. Bond ladder:-
It is a portfolio of fixed-income securities in which each security
has a significantly different maturity date.
Investors who purchase bonds usually buy them as a conservative
way to produce income.
However, investors looking for a higher yield, without reducing
the credit quality, usually need to purchase a bond with a longer
maturity.
It includes certain risk like:-
•Interest rate risk
•Credit risk and
•Liquidity risk