What is Yield or yield to maturity (YTM) of Bonds?
In simple words, if an investment is held till its maturity date, the rate of return that it will generate will be Yield to Maturity. YTM is the estimated internal rate of return earned by an investor who buys the bond today at the market rate on the assumption that it will be held until…
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Getting Started with Bonds: Know the Different Types
A bond is a debt instrument issued by a company or the government to raise capital by borrowing from investors. Bond investors are debt holders (lenders/creditors), while the bond issuer is obligated to pay bondholders interest (the coupon) at a predetermined rate and repay the principal on the maturity date. Like bank deposit receipts, bond…
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Features of Corporate Bonds explained
Corporate bonds are debt securities issued by private and public corporations. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. An investor who buys a corporate bond is effectively lending money to the company in return for a series of…
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Convertible bonds, floating rate bonds and negative bonds
Convertible Bonds: Convertible bonds are exceptional securities that have features of both bonds and equity options. The holders of convertible bonds have the opportunity to convert bonds held by them into specified number of company’s equity shares during validity period for options mentioned in the bonds. The bond holder also receives the coupon payment till…
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Understanding Bonds, Coupons and Yield to Maturity
(This post explicates the difference between coupon rate and yield to maturity) Bonds: A bond is a debt instrument issued by a company or the Government to raise capital by way of borrowing from the investors. The investors in the bonds are debt holders (lenders/creditors). The issuer of bonds is obliged to pay bondholders the…
What is a Foreign Currency Convertible Bond?
A foreign currency convertible bond (FCCB) is a special kind of convertible bond issued in a currency different than the issuer’s domestic currency. Multinational companies and governments routinely issue bonds denominated in various currencies to benefit from lower borrowing costs, and also match their currency inflows and outflows. FCCB gives investors an opportunity to convert…
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