" What are Bonds?
A bond is a commitment to pay by one issuer , to repay the principal plus the interest generated some holders of these instruments, which in this case are investors who will lend their funds. Upon issuance, these instruments are already preset corresponding payment terms, ie, expiration date, amount, sequence of payments currency, interest rate, among others.
bonds are known as the heads of fixed income instruments, due to its obligation to make fixed payments in certain time periods, which can be set annual, biannual, quarterly, monthly, and is known from the entry into force of the instrument.
These instruments can be issued by the Government, government agencies, municipalities, businesses, who find in such a form of financing instruments to carry out their projects.
Each type of bond, and each entity has a legal framework to meet the issue and placing them in the stock market. Notably, that bonds should not always be sold through financial markets, they can be sold to a certain group of people or an individual.
The main characteristics of bonds are:
· Issuer: organization responsible for ensuring the payment of principal and interest.
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The face value or principal : refers to the amount from which interest is calculated. Is the total amount lent or borrowed, where the issuer promises to repay the bond's maturity value.
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The price of a bond is paid by a bond that equals the sum of the value This principal of the bond, plus your coupons, in the case of ownership. The price varies according to market conditions
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The coupon is that regular periodic payment of interest or issuers engaged in the life of the bond, which is calculated based on the nominal value of the instrument, but not the price.
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Ripening or maturity of the bond , refers to the date on which the principal is paid, in a range between one and 30 years.
Some Types of Bonds: Interest Payment
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zero coupon bonds:
Zero coupon bonds are debt instruments that are characterized by a single payment at maturity date or maturity.
NO
These bonds offer regular interest payments as is usual with other bonds, and for that reason it is sold for a purchase price below face value, this is called off.
Coupon Bonds:
coupon bonds are those where the issuer agrees to make periodic payments, called coupons, the holder thereof, during the life of the bond until maturity date.
Issuer Type: Corporate Bonds
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issued by private companies as a way to raise funds for projects. Municipal Bonds
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are issued by any governmental body other than the Central Government. (The interest paid from income taxes or special projects).
Government bonds, issued by the Central Government of a country, generally considered the safest option.
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