BOND BASICS

It is important to be familiar with the following basic terms when learning about bonds.
 
 Bond. A debt sold by a company or government to raise money. One who buys a bond is a creditor of the company, but not an owner, as a stockholder would be.

 Indenture of trust. The legal document that details the terms of a bond, as well as the buyer's rights and responsibilities.

 Basis point. A measure of differences between yields or interest rates. The unit is one one-hundredth of one percent (0.01). For example, if a bond begins with a yield of 5.50 percent and the yield increases over time to 5.62 percent, the increase is 12 basis points.

 Indenture. The agreement that spells out the terms of a loan. This includes the principal, interest rate, maturity date and the rights and duties of the buyers.

 Short-term. In bond maturities, one to five years.

 Intermediate-term. In bond maturities, five to ten years.

 Long-term. In bond maturities, more than ten years.

 Legal opinion. In relation to bonds, a legal opinion is a statement declaring that a bond issue was authorized and issued. Included in the opinion is any tax-exempt status of the bonds.

 Par. The value of a bond assigned by the issuer; also called face value.

 Original issue discount. A bond with an offering price that is below par value.

 Full faith and credit. The commitment to repay a debt backed by the creditworthiness of a bond issuer.

 Coupon. A bond's interest rate.

Course Topics:
Bond Basics | Types of Bonds | Bond Features Buying, Selling and Trading Bonds