13.1 : Bond Features and Prices

Bonds are financial instruments used by corporations and governments to raise capital. These debt securities involve investors lending money to the issuer in exchange for periodic interest payments, known as coupons, and the return of the principal amount, or face value, at maturity. Bonds play a critical role in financial markets and investment strategies.

Issuers typically make coupon payments annually or semi-annually. These payments are calculated as a percentage of the bond's face value, determined by the coupon rate. Coupons may have fixed or variable rates, with fixed rates offering stable income and variable rates adjusting based on financial benchmarks like interest rates or inflation.

The face value represents the principal amount to be repaid at maturity. Bonds are classified by their pricing relative to this amount. Those sold at face value are called par value bonds, while those priced below face value or above face value are referred to as discount bonds and premium bonds, respectively.

The time to maturity defines the period remaining before the issuer repays the principal. Bonds can have short-term maturities of less than a year, intermediate-term maturities ranging from one to ten years, or long-term maturities extending beyond ten years. While some corporate bonds are issued with maturities of up to 30 years, others are designed for shorter durations, providing flexibility for issuers and a range of options for investors seeking predictable income streams.