Investing In Bonds Isnt Risky, Is It?

4 Pages 953 Words

1. General information and different types of bonds

1.1. General information
Bonds summarize all securities which guarantee interest payments and repayment of the principal value. These interest-bearing securities are launched by different issuers, e.g. states, industrial firms or banks, throughout the world.
The majority of these securities are quoted on the stock exchange.
Bonds consist of a bond certificate and a coupon sheet. The certificate embodies the creditor position and the coupon sheet consists of single coupons (interest warrants) and the talon.

There are a lot of different types of bonds. In the next section I will explain how investors can distinguish the bonds.

1.2 Classification
According to Grill&Perczynski (1999, p.209, p.211, p.226) bonds can be organized at the following criteria:
Issuer: public authority, banks, industrial companies
Interest charges: fixed, variable, non-interest-bearing
Run time: short term (until 4 years), medium-term (4-8 years), long term (from 8 years)
Repayment: total due (principal value will be paid back at maturity) sinking-fund bonds (are paid back in partial amounts), eternal loans (never paid back)
Stock exchange: fungible or not
Headquarter: national or international
Currency: e.g. $ or €
Special rights: additional rights with which the loan is equipped, e.g. convertible bonds

In this paper there are only analyzed four bonds, because they are the most common ones:
• Straight Bonds
• Zero Bonds
• Floating Rate Notes
• Convertible Bonds


1.2.1 Straight Bonds
Straight bonds are loan stocks. The investors regularly receive steady interest
payments, usually half-annual.
The interest rate, also called coupon rate, is determined by the issuers when they create the bonds. This interest rate corresponds to the market rate of interest at the time of issuing.
Straight bonds are quoted at the bond market, which is a separate branch of the st...