Bonds for Assurances
The promissory note written by a sole proprietorship or conglomerate to repay loaned money on an agreed time and with a fixed rate of interest is called a bond. A bond is usually issued in a group called bond issues to sponsor huge credits. An ordinary loan is usually made by a single lender to the borrower, for example a bank. A bond issue, on the other hand, is a loan made by a large number of lenders.
Businessmen buy bonds as assets. Unlike stock, which pays dividends, a bond pays interest which is a percentage of the face value of the bond. Compared to interests, dividends are percentages of the company’s profits. Interest payments are customarily due every half a year. The owner of the bond extracts a dated coupon from the bond and exchanges it for money. Registered bond owners are automatically informed where to obtain the money at regular intervals. Zero coupon bonds are sold at less than face value and at the end of a prearranged period of time, the procurer realizes a profit by cashing out the bond at full value.
A bond matures when the moment comes for the borrower to pay back the money loaned. Some bonds will continue to pay interest after maturity while others will not.