Question

I would like to know what does owning a bond means ?along with

Why is the yield curve usually upward when sloping?

what is the vocabulary term for the following

contractual rate of interest due to be paid by the issuer and received by the bond investor

Owning a bond means

Answer 1

Owning a bond means investment in bond. The owner of a bond is entitled to receive periodical interest at the time intervals and repayment of principal on the maturity date, as specified in the bond indenture (written on the face of the bond). The repayment could be at face value or otherwise, as specified.

Normal Yield Curve depicts low rate of return in short term, progressively increasing along with increase in the tenure. This curve slopes upwards gently. This is because the investors demand higher return for longer tenure due to the risk of uncertainties perceived in holding the securities for longer period. At the same time, the market perception is that the economy is and will grow steadily.

Contractual rate of interest due to be paid by the issuer and received by the bond investor is called “Coupon Rate”.