STOCKS AND BONDS

BONDS

Bonds
Debt: Money borrowed in exchange for interest.
Secured debt: Borrowed money that is backed by one or
more assets as collateral.
Unsecured debt: Borrowed money that is not backed with
collateral.
Principal: The original amount of money that was borrowed.
Bond: A debt instrument that allows an investor to loan
money for a defined period of time in exchange for regular
interest payments. Repayment is made as a lump sum at the
end of the period.
Corporate bond: A bond issued by a corporation.
Zero-coupon bond: A bond that is issued at a deep
discount to its face value and pays no interest.
Convertible bond: A bond that can be exchanged for
a specified number of common shares in the issuing
company.
Callable bond: A bond that the issuer can pay off prior to
its maturity, ending the interest payments.
Government bonds: Bonds issued by governments.
Called munis when issued by municipal governments and
treasuries when issued by the United States government.
Bills: Government bonds that mature in less than a year.
Notes: Government bonds that mature in one to ten years.
Bonds: Government bonds that mature in more than ten
years.
Par value (face value): The amount of money loaned to the
bond issuer.
Coupon: The bond’s interest rate.
Maturity date: The date at which the par value is repaid to
the bondholder.
Yield to maturity (YTM): The total return anticipated on a
bond if the bond is held until maturity. YTM accounts for par
value, market value (purchase price), coupon, current yield,
and time to maturity.

©2021 QUANTIC SCHOOL OF BUSINESS AND TECHNOLOGY

STOCKS AND BONDS

Current yield: The interest, expressed as a percentage of

current market value, an investor will receive for purchasing
a bond and holding it for one year.

current yield = annual interest received ÷ market value

= (par value × coupon) ÷ market value

Credit risk: The risk that the bond issuer fails to make
interest payments or fails to repay the bond at maturity.
Investment grade: Bonds with the lowest credit risk, rated
between Aaa/AAA and Baa/BBB.
Junk bonds: Bonds with the highest credit risk, rated below
Baa/ BBB.

©2021 QUANTIC SCHOOL OF BUSINESS AND TECHNOLOGY