Bonds are promissory notes, IOUs if you will, issued by a corporation or government to its lenders. They are usually issued in multiples of $1,000 or $5,000. The standard, or par, is $1,000. The bond indenture specifies the amount of interest to be paid at intervals, (usually every six months), over a specific length of time and the principal, (or original loan amount), to be repaid on the maturity date. A bondholder is a creditor; a shareholder is an owner.
Bonds are often secured, or backed by a specific pledged asset or other form of collateral. If the issuer defaults, bondholders have the right to liquidate its assets and recoup as much of their investment as they can. Here are some examples of secured bonds:
- Mortgage bonds
- Equipment trust certificates
- Collateral trust bonds
Other bonds are unsecured and are known as debentures. The debt is backed solely by the good faith and credit of the borrower. You have already read about a special class of debentures, convertible debentures, which were simply referred to as "convertible bonds" until now.
TYPES OF CORPORATE BONDS
There are many types of corporate bonds:
Though these instruments are risky, they aren't necessarily "junk". Read more in the article Junk Bonds: Everything You Need to Know to learn when junk bonds are a suitable investment.
Repos, fed funds, commercial paper, negotiable CDs and BAs are considered money-market instruments and, as such, they are almost as liquid as cash.
Retiring Corporate Bonds
InvestingWhen companies need to raise money, issuing bonds is one way to do it. A bond functions like a loan between an investor and a corporation.
InvestingTaking on high-yield bond investments requires a thorough investigation. Here are looking the fundamentals.
InvestingBonds play an important part in your portfolio as you age; learning about them makes good financial sense.
InvestingOne way for a company to raise money is to issue bonds.
InvestingThere aren't many other sources right now for relatively safe, steady income.
InvestingRetirees seeking income from their investments typically look into bonds. Here's a look at the types of bonds, bond funds and their pros and cons.
InvestingWe break down the stodgy stereotype to see what these investments can do for you.
InvestingLearn these basic terms to breakdown this seemingly complex investment area.