Define Convertible Bonds and Exchangeable Bonds
Convertible bonds Convertible bonds are bonds that are convertible into ordinary (also known as common) shares at a pre-specified price at the option of the…
Finance
What is Strips Bonds?
STRIPS is the acronym for Separate Trading of Registered Interest and Principal of Securities. These securities have existed in international bond markets for some years.…
What is Call Bonds?
Call bonds are also termed bonds with call provisions. Call bonds are plain vanilla bonds that have a call provision attached, i.e. the issuer has…
Explain Zero Coupon Bonds versus Coupon Bonds
A zero coupon bond, as the name indicates, is a bond that does not have any coupon payments. An example follows (Figure): Nominal value: LCC…
Explain Inflation-linked Bonds
Inflation-linked bonds are also called index bonds. Their return is usually linked to the CPI (consumer price index) and as such is a variation of…
Explain Floating Rate Bonds versus Fixed-rate Bonds
Floating rate bonds (also called “floating rate note” – FRN) contrasts with a fixed-rate bond. This bond usually has the same features as a plain…
Explain Perpetual Bonds versus Fixed-term Bonds
Perpetual bonds are knows as perpetuities, consols, treasury annuities and undated treasuries. They have an English genesis and they contrast to fixed-term bonds. A perpetual…
Explain Bearer Bonds versus Registered Bonds
Bearer bonds contrast to registered bonds. The plain vanilla bond in the example is a registered bond meaning that the name of the investor is…
What is Plain Vanilla Bond?
A plain vanilla bond is a fixed-term, fixed-rate and registered bond. An example is presented in Box. Figure: example of cash flows of plain vanilla…
What is Inflation Risk?
Inflation risk is the risk that the real rate of interest earned on a bond falls, due to inflation. For example, if an investor buys…
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