Concept and types of bonds

A bond is an issuing security, which, along with a promissory note, is a debt instrument. The bondholder, when cashing it, expects to receive the face value of the security and interest that is paid at certain time periods. It is this feature of the bond: the length of payments over time, and to some extent makes it difficult to assess the value of the bond.

As a rule, issuers of bonds issue this type of security for the replenishment of working capital due to a loan of capital. Under such an operation, the buyer of the bond and the lender mean the same, as the buyer takes on financial risks, which is also taken into account in the valuation. The popularity of this kind of loan is simple: investing in bonds is associated with less risk than venture investments (investing in stocks), so the investor can fully calculate his future income and calculate interest on the security. The risk of non-payment, albeit minimal, exists always, and the accuracy of the issuer's reliability analysis is also taken into account when assessing a bond. Methods of bond valuation are the same as for other securities, such as bills of exchange or deposit certificates (methods of income and comparative approaches).

First, the cash flows are discounted taking into account the non-simultaneity of coupon payments, and the amounts are added, forming a common coupon yield, brought to a certain point in time. This figure is summed up with the value of the discount, discounted in time, i.e. Given to the current moment.

The increase in issuers and bond buyers has a beneficial effect on the financial market as a whole, as it creates additional sources of loan funds, in addition to loans. But, at the same time, the growth in the number of issuers and operations of bank lending on the security of highly liquid securities may entail a loss of financial capital.

If you disclose the theme of the concept and types of bonds, it also requires a detailed review of the proposed options in the financial market options for bonds. Since there are quite a lot of various bonds, they are classified according to several criteria.

Depending on who issues these securities, there are the following types of bonds: state, municipal, corporate, foreign. According to the terms of issue, there are types of bonds, such as bonds with the specified maturity date and without a fixed term. The first, in turn, can be short-, medium- and long-term. The second group is more diverse: indefinite, revocable bonds (they can be withdrawn before the end of the term), bonds with the right of repayment, extended and deferred. The difference between lengthened and deferred is that at first you can extend the period for obtaining a nominal value and at the same time continue to receive interest, you can simply postpone or defer payment on deferred.

Types of bonds in order of ownership: registered and bearer. For the purposes of the bond loan, they are divided into those that serve to refinance the debt of the issuer, and those that are used to finance certain investment projects. By type of placement: freely and forcibly placed. By the method of redemption of the face value: one-time payment, distribution by repayment time, consecutive repayment.

Types of bonds in terms of circulation: non-convertible and convertible. On collateral: secured and unsecured income. For coupon income payments, bonds can be fixed-rate, floating-coupon, with a steadily increasing coupon rate, with a minimum / zero coupon, with a payment option, and, finally, mixed-type bonds.