Bond

What is bond finance

What is bond finance

The term what is Bond finance that it is the specific fixed amount given out to investors by an individual usually debtors for the loan given to them for the purpose of the individual to finance his business. These investors are the creditor.

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The coupon rate usually depends on the market factors and the length of time for expiration. The coupon rate also depends on the amount of bonds issued out to the creditor. Bond price is usually from $100 to $1000 per individual bond and it is issued in per. For example, a company might decide to sell fifty bonds with rate of one being $150 and a coupon rate of 1%. An investor that buys the whole fifty bonds has his coupon rate being 50% after the payment of $7,500 for the bonds issued out by the issuer.

Types of Bonds

There are two main feature of bonds. What is Bond finance having credit quality and duration. The duration is the time the bond is going to last. Duration determines the interest rate on the bond. The longer the duration of the bond, the higher the coupon rate. Credit quality shows the value of the bond to be issued to the creditors or investors.

what is bond finance

The higher the value or quality of the bond, the lower the coupon.

For example, a company that has 50 bonds to issues and decide to issue a bond for $250 with a coupon rate of 1%. An investor that buy the whole 50 bonds at the amount of $12,000 and have a coupon rate of 50%. When another company follows the same pattern but this time decides to sell per $150 for the coupon rate of 1%. Same investor buys the whole 50 bonds and have a coupon rate of 50%.

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The investor discovered that the $7,500 should earn him lower coupon and the $12,000 should earn him higher coupon rate but sees that they were still giving him the same coupon rate. So he had decided to buy the one with lower value to have a higher coupon rate. Here is some small description about bond in finance and if you want full article on what is a bond in finance then read this article.

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Harish Yadav

Finance and market analyst and chief writer on howtofinance. Passionate to read books and articles on marketing and accounting. Also edits other articles and publish them here.

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