Bond is source of finance which is obtained for more than one year period. Bonds can be traded before the maturity and bondholders are considered to be secured creditors of the company. In general, bondholder can earn interest on principal and capital gain for holding it till maturity.
Types of Bonds
Various types of bonds can be issued such as:
01. Convertible bonds-
A convertible bond defined as “a bond that can be converted in to equity capital of a firm at the discretion of the bondholder after a specific time period”. In other words convertible bonds give a chance to bondholder to convert it into ordinary shares of the company after a specific time period and they receive interest income too.
02. Zero coupon bonds-
Zero coupon bonds are issued at a lesser rate than the face value and the investor does not receive an interest payment instead the face value will be repaid upon the maturity compensating the loss of interest income.
03. Foreign currency bonds-
Foreign currency bond is defined as “a bond that is issued in any currency other than the domestic currency of the organization”. These bonds are issues with the intention of benefiting from interest rate differences and exchange gains.
04. Extensible and retractable bonds-
Extendible and retractable are defined as bonds which has more than one maturity date in the bond can be redeemed. In other words maturity date of the extendible bonds can be extended and the retractable bonds have to be repaid before the original maturity date if the bond holder demands.
05. Corporate bonds-
Corporate bonds are defined as a bond which is issued by organizations that exists make profit to raise cash to finance their day to day operations and growth projects such as acquisitions. These investments have a higher risk and companies promote corporate bonds using future earnings expectations and reputation earned from past performance.