Baby Bonds

See Also:
Coupon Rate Bond
Non-Investment Grade Bonds (Unsecured Debentures)
Par Value of a Bond
What is a Bond?
Yield to Maturity of a Bond

Baby Bonds Definition

The baby bonds definition is completely the same as a normal bond except for the fact that the face values are less than $1,000. They typically come in denominations of $500 or $25.

Baby Bonds Meaning

A baby bond has two special purposes. First, a baby bond are able to bring smaller investors into the market allowing companies to benefit from another source of cash. The second purpose is to provide funding for smaller companies who do not have access to the larger institutionalized markets.

Baby Bonds Example

Look at the following baby bonds example. Sarah has $600 that she would like to invest in debt instruments. However, the amount is not enough for her to invest in a bond with a $1,000 face value. She hears about baby bonds from a friend and decides to invest in one $500 face value bond and four $25 face value bonds. Both of them pay the same interest rate at 5%, semi-annually. This is much more beneficial to Sarah because she can get a higher interest rate through a baby bond than she can when she is investing in a certificate of deposit or savings account.
baby bonds, Baby Bonds Definition, Baby Bonds Example
baby bonds, Baby Bonds Definition, Baby Bonds Example

ARTICLES YOU MIGHT LIKE

Mining the Balance Sheet for Working Capital

Mining the Balance Sheet for Working Capital Let’s face it… There has been significant liquidity in the marketplace over the past couple of years. Debt and equity capital has been relatively easy to find and commercial banks have been very willing participants as capital providers; however, many of the commercial banks have admitted that this robust marketplace

Read More »

Is Your Business Bankable?

Businesses call us for many reasons but here are two very common reasons why we get called… They are growing and want to strengthen the financial function. OR They are in financial distress and can’t find a way out. Why does a business need to be bankable? What does being bankable mean? In this blog,

Read More »

Alternative Forms of Financing

It happens all the time. Companies need capital, but they aren’t bankable. Banks or other financial institutions will not touch them because they are either too risky, not able to meet covenants, or it just doesn’t work out for some reason. So, where do those companies go? They need to look at alternative forms of

Read More »

JOIN OUR NEXT SERIES

Financial Leadership Workshop

MARCH 28TH-31ST 2022

THE ART OF THE CFO®

Financial Leadership Workshop

Days
Hours
Min

June 12-15th, 2023

SHARE THIS ARTICLE
WIKI CFO® - Browse hundreds of articles