TABLE OF CONTENT

INTRODUCTION

● WHAT IS FINANCIAL SECURITY BOND? …………………………………. 2

BODY CONTENT

● WHAT ARE THE CHARACTERISTICS OF BONDS? …………………….. 3

● HOW MANY TYPES OF BONDS THAT AVAILABLE? ……………………. 4

● WHO ARE THE ISSUERS OF BONDS? ……………………………………. 5

● WHEN IS THE MOST SUITABLE TIME TO BUY BONDS? ………………. 6

● WHY PRICES AND INTEREST RATES RELATED TO EACH OTHER? 7

CONCLUSION …………………………………………………………………………. 8

REFERENCES .………………………………………………………………….……. 9
INTRODUCTION

WHAT IS FINANCIAL SECURITY BOND?

A negotiable financial instrument holding some kind of monetary value which can be

issued by a firm or government is termed as a security. An investor gives a firm or

government a loan, which is known as a bond. A firm or government borrows money

from investors by issuing a bond, and the investors are compensated with interest on

the money they loaned. Bonds are regularly issued by firms and governments to

support new projects or continuing costs. Bonds are used by some investors in the aim

of safeguarding their funds while also producing additional income. Bonds are

occasionally used to diversify a portfolio and are frequently seen as a less risky option

compared to stocks.

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WHAT ARE THE CHARACTERISTICS OF BONDS?

A bond is a sort of debt or long-term promissory note issued by a borrower that

promises its holder a predefined and fixed amount of interest every year, as well as

principal repayment at maturity. A bond represents both a promise to repay the principal

amount at maturity and semiannual interest payments over the life of the bond.

Generally, bonds are issued when the amount of capital needed is too large for one

lender to supply. Bonds are contractual and negotiable instruments. As such, the face

of a bond must state specific things in order to remain negotiable or tradeable. It must

include the issuing company name, the principal amount, the maturity date, the stated

interest rate, and the interest payment dates.

There are a few key terms or characteristic of bond. Firstly, par value. The bond's par

value is the principal amount that must be repaid when the bond matures. It is

sometimes referred to as the face value or maturity value. Next is the stated rate. IIt is

the yearly interest rate that is used to compute the periodic interest payments. It is also

known as the coupon rate since it appears on the bond certificate or coupon. Lastly,

maturity. It is the period of time until the principal amount of the bond must be repaid. A

contract is a legal contract between the company issuing the bond and the trustee who

represents the bond holders. It specifies the loan agreement's provisions, such as the

bond holders' and issuing firm's rights. Many of these provisions are designed to

safeguard bonds from being weakened by managerial action or other security holders.

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HOW MANY TYPES OF BONDS THAT AVAILABLE?

Bonds are classified into two types, secured bonds, which are collateralized by a

specific asset, and unsecured bonds, which are not collateralized by assets.

Bondholders and bond rating agencies assess a company's creditworthiness based on

its reputation. Unsecured bonds, often known as debentures, are the most frequent type

of bond. So debentures are long-term unsecured debt. The issuing firm benefits from

the fact that assets are not tied up as collateral. As a result, they can acquire, resell,

substitute, demolish, and exchange assets without having to amend bond contract

information.

There are also a few other types of bond such as convertible bonds, which are bonds

that may be exchanged into stock at a predetermined price. In contrast to the

guaranteed return of bonds, in which firms determine when bonds are called,

bondholders decide to choose whether or not to do the conversion and become

shareholders.

4
WHO ARE THE ISSUERS OF BONDS?

The borrower is the bond issuer, whereas the lender is the bondholder or purchaser.

Bond issuers refund the principal value to bondholders when the bond matures. There

are a few types of bond issuers. Firstly, firms that issue bonds, which are the most

prevalent form of bond, are known as bond issuers. Bonds are issued by firms when

they need funding to finance projects or for working capital. Firms may issue multiple

types of bonds, each with its own set of bond characteristics. As a result, a company

with a certain credit rating may have bond difficulties that are not necessarily consistent

with that credit rating.

Next is the government. It is the second most common type of bond issued by

governments. Depending on the country issuing the bond, government bond ratings are

often quite high. A bond issued by the government of a developing nation is by default

riskier and lower rated than a bond issued by a developed nation.

Lastly, regions and municipalities. Smaller municipalities, like governments, may issue

bonds in a similar manner. These bonds are often rated similarly to the overall

government. While the bonds actually are not issued by the government, they are

normally backed by the government's full faith and credit.

5
WHEN IS THE MOST SUITABLE TIME TO BUY BONDS?

Interest rates and bond prices have an inverse relationship: as one rises, the other falls.

Imagine a seesaw: one side rises, the other side falls. In normal times, investors dispute

whether interest rates will rise or fall. When looking for bonds to invest in for a portfolio,

individuals are mostly concerned with two factors: creditworthiness and yield. When

investing in bonds, the most important element to consider is credit worthiness. As long

as the borrower is in good financial standing, if they are creditworthy, individuals are

legally guaranteed the interest payments as well as the return of the principal. People

may or may not receive their money back if the borrower declares bankruptcy. It is

critical to conduct due diligence on the borrower and only invest in bonds that are

creditworthy.

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WHY PRICES AND INTEREST RATES RELATED TO EACH OTHER?

Bonds are valued in the market depending on their special characteristics. The price of

a bond fluctuates on a daily basis, just like the price of any other publicly traded

instrument, and is determined by supply and demand at any particular time. However,

there is some logic to how bonds are valued. A bondholder can sell their bonds on the

open market at any moment, when the price can change substantially. Meanwhile, the

interest rate is the proportion of the principle that a lender charges for the use of assets.

Borrowed assets might include cash, consumer products, or significant assets like a

vehicle or a structure. Most bonds pay a set interest rate that rises in value when

interest rates decrease, increasing demand and the bond's price. If interest rates rise,

investors will no longer favour the lower fixed interest rate offered by a bond, causing its

price to fall.

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CONCLUSION

Bonds are debt, whereas stocks are equity. Bondholders have a better claim than

shareholders since they are assured a return on their investment. This is why stocks are

considered riskier investments that demand a bigger return. Bonds are graded to inform

investors about the amount of risk of payment default. The bond coupon rate is

determined by the real interest rate implicit in the coupon, the predicted inflation rate,

the time remaining to maturity, and the interest rate risk, default risk, and liquidity risk.

The face value, coupon rate, maturity, and issuer of a bond. Bonds are not without

danger; it is always conceivable, especially in the case of corporate bonds, for the

borrower to default. Most investors may optimise their risk-return balance by investing a

portion of their portfolio in various bond investments, both investment-grade and high

yield.

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REFERENCES

● https://www.investopedia.com/terms/b/bond.asp

● http://www.jrbcj.org/intro-to-bonds

● https://en.wikipedia.org/wiki/Bond_(finance)#:~:text=In%20finance

%2C%20a%20bond%20is,bond%20issuer%20to%20the%20holders.&text=The

%20bond%20is%20a%20debt,date%2C%20termed%20the%20maturity%20date

● https://investinganswers.com/articles/ask-expert-when-best-time-buy-bonds