2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16
Bonds are securities certifying the fact that the issuer has received a loan from an investor who is en titled to a regular dividend fixed income, and after their redemption - in the amount of the face value. The economic essence of these banknotes is similar to lending. We can say that bonds are an IOU received by an investor from a borrower in exchange for his money.
Enterprises issue securities to raise funds for their development. Each of them has a different denomination and favorable conditions. Based on this, we can conclude that the buyer is previously familiar with future income, and the legal entity with its costs. The process of transferring the right to the creditor is simplified as much as possible, and there is no need to register a pledge. In general, the purchase of securities has a medium or long term - from one year to thirty years. Issuers start issuing bonds when they can afford to borrow money. At the same time, they must have predictable income for the future, due to which the debt will be repaid on time, and also be strong ineconomic plan.
Bonds are issued as needed by the borrower in order to obtain additional financial resources for various social programs, modernization of the production process or the introduction of innovative technologies. There is a significant detail that distinguishes stocks and bonds. This is a stable income received by an investor from a banknote for a certain period of time and the loss of its value at the time of redemption. Another important detail is that the owner of the bond only finances the activities of the issuer, having won the full remuneration, but does not have the right to take part in management. Securities have a fixed income, which is indicated on the form of a special certificate. The percentage of cash calculation is called the coupon rate. It can be floating or constant, depending on the type of bond. These can be special coupons with which interest is paid annually or quarterly, depending on the conditions for issuing banknotes. The income generated in this way is called the bond's coupon.
An example of this is the well-known bank deposit. Trading bonds and they themselves have many types and classifications. Therefore, each individual case is best considered, focusing on the list of securities legally fixed by a particular state. Beginners ask themselves: "Where to buy bonds?" This can be done in several ways: buy at over-the-counter auctions,through a bank, investment fund or brokerage company. For direct purchase of securities, you need to contact any stock exchange. You can keep access to buying by having a special account and a trading terminal. For a broader perception of this topic, I recommend that you familiarize yourself with what bond valuation is.
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