Definition of Bond

Bond is that financial product of company which is issued for getting loan. Government and semi-government bodies issue bonds. Its other name is debenture when it is issued by private company.

When company issues bonds, at that time company writes a certificate and accepts that it will repay the mention amount of loan after fixed time with fixed rate of interest.

The following things must be clear, if you or your company is issuing bonds.

1. Amount of Principle

You should tell bonds holder or investor, what amount you are taking. Investor should sure that amount will not demanded more than given principle amount.

2. Issue Price

Sometime, it may possible that company can issue bonds at discount. Then, at maturity, investor will have the right to receive only issue price not principle amount.

3. Maturity Date

It is the date when companies repay or redeem the loan to investor. It may possible that loan is taken for short period or long period. In short term loan, bonds amount will repay with in one year and in long term loan, bonds amount will repay more than 5 years.

4. Coupon

Almost all the bonds are bearer and interest coupons are attached with it. After one year or six months, interest is payable to that person who holds these bonds on coupon date.

Kinds of Bonds

We can classify bonds or debenture with following way.

Ist Kind of bonds

Fixed rate bonds

If bonds are issued with fixed rate of interest, then these bonds are called fixed rate bonds. For example Mr. James takes bonds of $ 5000 and he gets the interest coupon with fixed rate of interest at the time of purchasing of bonds, then these types of bonds will be fixed rate bonds.

2nd Kind of bonds

Floating rate bonds

If interest is not fixed and it is changeable according to the condition of financial market, then these bonds are called floating rate bonds.

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Accounting Education: Bond
Accounting Education
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