What are the types of bonds and important terms to understand for bonds?
1. Term Bond-a bond that will pay the entire principal upon maturity at the end of the term.
2. Serial Bond- a bond in which the principal payments are made in installments.
3. Debenture Bonds- a bond that is unsecured by no collateral super risky
4. Stated, Face, Coupon, Nominal rate- the rate that is printed on the bond itself.
5. Carrying Amount- this is the net amount at which the bond is being reported on the B/S, and equals the face value on the bond +/- bond premiums/discounts.
6. Effective rate, Yield, Market interest rate- this is the actual interest the company is paying the bond based on the issuer price. The effective rate is often term used.
7. Convertible Bond- a bond that is convertible into common stock of the debtor at the bondholders option.
8. Callable Bonds- a bond which the issuer has the right to redeem prior to its maturity date.
9. Covenants- Restrictions that borrowers must often agree to in order to get bond.