What is a bond?
Bond is a fixed-income instrument which an issuer is a borrower. The debtholder is a loaner. It is legal that the issuer pays the incomes in fixed interest rate (coupon) with installment and the principal to debtholders following the instrument which is constantly paid in a fixed period of time such as every 3 month or every year following fixed interest rate. The coupon can be variable or fixed interest payments and can be compound interest.
A bond which is issued by the government is a government bond, and a treasury bill. A bond which is issued by a corporation is debenture, bill of exchange, and promissory note.
The components of bonds
Par Value: The amount of money that bond issuers promise to repay bondholders at the maturity date of the bond. The amount will decrease when there is some payment for the principal.
Coupon Rate: The rate of interest paid by bond issuers on the bond's face value.
Coupon Frequency: The number of times per year when an issuer pays the coupon to holder, which it is commonly paid semi-annually.
Maturity Date : The date when a debt comes due and all principal and/or interest must be repaid to creditors.
Covenants: The conditions, embedded options, and any other formal debt agreement, that the bondholder must follow or abstain while having the bond such as debt to equity ratio.