7 Most Common Bond Instruments (Finance)

in #finance4 years ago (edited)

Author : @awladtalukder (80% payout)

What is a bond?

Bond is an agreement between a company or business concern and people where business concern receives money in a fixed interest or coupon rate from a man or investor and what would be paid to investors by concern after a certain time period. Bonds were invented so that a company did not have to sell shares of its company; instead, it would issue debt labeled as bonds, often with company or future profit as collateral.

Here, whether a company could make a profit or not, investors hold the right to get interest based on the agreement.

So, bonds can be considered as loans.

How do bonds work?

Financing new projects and continuing the functions of a concern, companies need to take loan vs. sell shares. They can issue bonds to investors instead of taking a loan from a bank or selling shares. Issuer issues bond and interest would be paid based on agreement and book value of bond must be paid in the expiring year.

Interest rate, which is called a coupon.

1. Treasury Bond

Boosting capital, treasury bond is a debt tool of a business concern. It is called fixed revenue security as treasury bondholders get a constant interest rate based on agreement.

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