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Bond

• Long-term debt instrument used by business and government to raise large sums of money, generally from a diverse group of lenders. In the case of business bond issuers, a specific asset or assets are pledged as collateral.

• A bond is essentially a loan made by an investor to a division of the government, a government agency, or a corporation. The bond is a promissory note to repay the loan in full at the end of a fixed time period. The date on which the principal must be repaid is the called the maturity date, or maturity. In addition, the issuer of the bond, that is, the agency or corporation receiving the loan proceeds and issuing the promissory note, agrees to make regular payments of interest at a rate initially stated on the bond. Interest from bonds is taxable based on the type of bond. Corporate bonds are fully taxable, municipal bonds issued by state or local government agencies are free from federal income tax and usually free from taxes of the issuing jurisdiction, and Treasury bonds are subject to federal taxes but not state and local taxes. Bonds are rated according to many factors, including cost, degree of risk, and rate of income.

• A formal certificate of debt, issued by corporations or units of government.

• A legal obligation of an issuing company or government to repay the principal of a loan to bond investors at a specified future date. Bonds are usually issued with a Par or face value of $1,000, representing the amount of money borrowed. The issuer promises to pay a percentage of the par value as interest on the borrowed funds. The Interest payment is stated on the face of the bond at issue.

• Bonds are debt and are issued for a period of more than one year. The U.S. government, local governments, water districts, companies and many other types of institutions sell bonds. When an investor buys bonds, he or she is lending money. The seller of the bond agrees to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically.

• The term bond refers to long-term debt of companies or governments.

 
 

Follow this link for all the terms related to bond.

 
 Embedded terms in definition
 Agencies
Agency
Assets
Asset
Collateral
Corporate bonds
Corporate bond
Corporation
Debt instrument
Debt
Face value
Future
Governments
Income
Interest
Investor
Issuer
Issue
Lending
Local
Maturity date
Maturity
Municipal bond
Note
Par value
Par
Principal amount
Principal
Promissory note
Risk
Sell
Subject
Term bond
Time
Treasury bond
Type
U
 
 Referenced Terms
 Accretion of a discount: In portfolio accounting, a straight-line accumulation of capital gains on discount Bonds in anticipation of receipt of par at maturity.In portfolio accounting, a straight-line accumulation of capital gains on discount Bond in anticipation of receipt of par at maturity.

 Accrual bond: A Bond on which interest accrues, but is not paid to the investor during the time of accrual. The amount of accrued interest is added to the remaining principal of the bond and is paid at maturity.

 Accrued interest: Is the amount of interest which has accumulated since the last coupon interest payment. It is the amount of interest which the holder is entitled but is not due until the payment date. The buyer pays the seller of the Bond the accrued interest.The accumulated coupon interest earned but not yet paid to the seller of a Bond by the buyer (unless the bond is in default).Interest due from issue or from the last coupon date to the present on an interest-bearing security. The buyer of the security pays the quoted dollar price plus accrued interest.

 Accrued interest: Is the amount of interest which has accumulated since the last coupon interest payment. It is the amount of interest which the holder is entitled but is not due until the payment date. The buyer pays the seller of the Bond the accrued interest.The accumulated coupon interest earned but not yet paid to the seller of a Bond by the buyer (unless the bond is in default).Interest due from issue or from the last coupon date to the present on an interest-bearing security. The buyer of the security pays the quoted dollar price plus accrued interest.

 Advanced refunding: Is the technique of replacing one Bond issue by another. This typically occurs when a municipality can borrow at more favorable terms than the outstanding issue. The new issue's proceeds are used to purchase government obligations which are held in escrow. The income and/or appreciation of these government securities is then used to service the outstanding debt. The escrow may be held until the first call date or maturity of the initial bond issue. If the escrowed funds retire the original issue at the first call date then the issue is pre-refunded. This retirement and replacement process of debt is also known as defeasance.

 
 Related Terms
 

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