BONDS - Accounts and Finance for Managers

It is a long-term debt instrument issued by the company to raise the financial resources from the market, for specific period and it carries fixed rate of interest which has its own salient features

  • Issued at face value i.e Par value and Par or Discount.
  • Rate of interest is fixed or flexible i.e. variable / floating rate of bond - coupon rate of bond.
  • Maturity date is specified but not in the case of perpetual bonds.
  • Redemption value - in the bond certificate - may be par or premium - terms of the issue.
  • Bonds are traded in the market.

Type of Bonds

  • Secured Bond: Issued on the assets of the issuer.
  • Unsecured Bond: Issued by the issuer on the basis of name and fame.
  • Perpetual bond: Bonds do not have maturity.
  • Redeemable bond: Redemption or Repayment of the principal is specified by the issuer.
  • Fixed rate bonds: Rate of Interest is fixed at.
  • lFlexible/Floating rate bonds: Rate of interest is subject to prefixed norms.

The further more classification of bonds are available. They are following:

Zero Coupon bonds: These bonds are sold at discounted value and will be given at the face value after the maturity period.

Deep discount bonds: It is another kind of zero coupon bond. Large discount is made on their nominal value. Interest is paid only at the time of maturity -3-25 years.

Pay in kind bonds: This another kind of long-term instrument of raising funds. During the First three years, these bonds need not pay any interest to the holders of the bonds, in stead the interest bonds are issued which are known as additional bonds. These additional bonds are called as baby bonds or kid bonds which are derived out of the parent bond. It is identified by the many of the companies as wonderful instrument to raise the capital from the market at the early stage of commencement of business.
The next type long-term instrument is that Warrants.

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