Have you ever borrowed money before? Sure, we all have!
We may have borrowed formally from an institution or less formally from our relatives or friends. Similar to how we need and borrow money, companies and governments borrow money in much the same way.
What is a Bond?
Simply put, a bond is a loan, an IOU. You, the investor, are the lender. The organization for which the bond is created, the one desiring the loan, is known as the issuer. JMMB as a Money Market Broker with regional and international reach is able to facilitate the purchase of a wide range of bonds that clients may require.
Characteristics of a Bond
Having decided to lend your money, there are some basic requirements that you desire of the issuer to ensure that your hard-earned money comes back to you, furthermore, that you are compensated for having loaned it out. These requirements are met by way of a contract that is created. The issuer pays for this service in the form of interest payments.
Usually these payments are made on a periodic basis and a rate that is referred to as the coupon rate . The total amount borrowed is called the face value of the bond. The date on which the issuer has to repay the amount borrowed is known as the maturity date . Bonds are known as fixed-income securities because you know the exact amount of cash you will get back, provided you hold the security until maturity.
For example, you buy a bond with a face value of $1,000.00, a coupon of 10%, and a maturity of five years, with half yearly interest payments. In this case, you will receive a total of $100.00 ($1000.00*10%) of interest per year for the next 5 years or $50.00 every six (6) months: A total of 10 payments of $50.00 each. When the bond matures after five years you will get your $1000.00 back.
For more about Bonds, take a look at the Bond Dictionary.