What is a bond? It is a corporate or government debt instrument. It represents a loan to the company from the investing public. In this case, the company is the borrower and the investor is the lender. Companies issue bonds to raise money for business investments.
What is a Bond?
A bond has a par value, a maturity date, and a coupon rate. The maturity date is the date the company must repay the investor an amount equal to the par value. The par value is the amount the lender will receive at the maturity date. The coupon rate is the interest rate on the bond. A coupon is typically semi-annually. So if the bond has a coupon rate of 8%, the investor will receive two payments per year, each equal to 4% of the bond’s par value.
Rating agencies rate the creditworthiness of bonds. High quality bonds are considered investment grade. Low quality bonds are considered noninvestment grade, or junk bonds.
Non-Investment Grade Bonds
Yield to Maturity of a Bond
Zero Coupon Bonds