BU111 Final: Alternate Types of Investment - Bonds Everything on bonds, including calculations and examples

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BU111 Full Course Notes
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BU111 Full Course Notes
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A bond is a promise by the issuer or borrower to repay the investor a set dollar amount (principal) , at a set date (maturity), and to pay the investor a fixed rate of interest (coupon rate) each year. Coupon rate formula: annual interest = coupon rate x face value (,000, an investor will never receive anything more than this amount of interest, but will also never receive anything less than this amount. If the issuer of a bond fails to pay the required amount of interest to the investor, it is considered to be an act of bankruptcy. The bondholder can then take action to force the company to liquidate its assets and use the proceeds to pay their outstanding claims (all interest owed plus full repayment of the principal loaned) This is how this occurs: the bond indenture (contract) The security pledged as collateral give rise to different types of bonds: