A. INTRODUCTION 1

I. OVERVIEW OF BOND 2

1. Definition 2

2. Features of bond 2

2.1. Par value/ Face Value/ Principal 2

2.2. Coupon 2

2.3. Maturity date 2

2.4. Bond pricing 3

2.5. Credit rating 4

2.6. Callability 7

2.7. Putability 7

3. How are bonds different from stocks? 7

II. INSTITUTION ISSUING BONDS 8

1. Government bonds 8

2. Municipal bonds 9

3. Corporate bonds 9

3.1. Definition 9

3.2. Advantages of bond financing over a bank loan 9

3.2.1. Fixed Interest Rate 9

3.2.2. Long-term Loan, Fully Amortized 10

3.2.3. Open-ended Mortgage 10

3.2.4. Liberal Prepayment Provisions 10

3.3. Type of corporate bond 11

3.3.1. Secured bond 11

3.3.2. Unsecured bond (debenture) 11

3.3.3.Convertible bond 11

3.3.4. Junk bond 12

3.3.5. Zero coupon bond 12

3.4. Requirements 12

III. RISK OF INVESTING IN BONDS 13

1. Interest Rate Risk 13

2. Inflation Risk 13

3. Default Risk 14

4. Rating Downgrades 14

5. Liquidity Risk 14

IV. WHY BUYING BOND? 15

1. Income predictability 15

2. Safety 15

3. Choice 15

B. CONCLUSION: 15

C. REFERENCES 1