BU111 Lecture : Ch 5 Notes Part 2.docx
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BU111 Full Course Notes
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Document Summary
Types of investments: bonds: represents debt for issuing corporation or government. Bond is a debt instrument in terms of the company that issues that bond. Uses the bond to raise capital, company that issues enter into a borrowing agreement. Advantage of issuing debt is that ownership is not lost, but have to pay back bond money received plus interest over the life of the bond, and principal at the of the life of the bond: characteristics. Legal recourse if principal and interest not paid. Fixed rate of return (often paid semi-annually) Return is fixed, set out upon issue of that bond. Bond will state exactly when they are paid (coupon rate), promised for the life of the bond. Set the rate for the year, but split the annual interest into two payments. Fixed term principal repaid at maturity. Bond agreement akin to a loan agreement, the principal will be returned at a given date.
