Question

Briefly describe what a "bond" is and give three examples that identify the issuers of the most common types of bonds that are available to investors.

Answer 1

Bond is an instrument of indebtness of the bond issuer to the holder.This is like a fixed income instrument

there are two types of bonds

1) Municipal bonds 2) corporate bonds

Municipal bonds means those bonds which is issued by the government

While corporate bonds issued by the companies to raise funds.

Example -

Municipality issue municipal bonds for a par value of $1000 lakhs and offer investor an annual interest rate of 5 %

X purchase a 5% bond from xyz company with face value $1000

A zero coupon bond with a face value of $ 10000 and a 10 year maturity might trade today for just 60% of face value.