Bonds (bundle of note payables)

 Instead of selling additional share capital, companies used bonds to finance big projects.

 Also called capital market instrument.

 Bond is a financial instrument used to conduct DEBT financing.

 Bond are like long term notes (note payables).

 Bonds are issued to do long term financing.

 Can be easily sold to others interested in buying.

 Semi-annual or quarterly interest payments (contract rate/ interest rate/ Interest Charges).

 Nominal price, face value, principal value, par value.

Features of a Bond:

Principal amount
Interest
Time duration
Maturity

Issuing party:

that issues bond because it need finance therefore they pay interest on bond and repay the
principal amount

Holder party:

gives/ arrange money/ finance for the issuing party and therefore receives interest income and
principal upon maturity

Underwriters:

 Investment banks are underwriters.

 These banks sell bonds on behalf of issuing corporations.
 Underwriters guarantee a price to issuing corporations and sell bond above that price.
 Underwriters basically helps in selling bonds and transfer amount to issuing corporation.
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