What is a Bond?

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Key Words in this lesson: Corporate Bond, Par Value, Term, Coupon Rate, Underwriter's Fee, Government/ Treasury Bond, Local Government Bond, Inflation, Interest Rate.

In the event of a bankruptcy, the order of equity distribution is:
1. Bond holders.
2. Preferred share holders.
3. Common share holders.




Key Words in this lesson: Par Value, Coupon Rate, Term, Market Price, Basis Points.

Long term bonds with good coupon rates become attractive when:
- The stock market is overpriced and the yield is only similar or worse than bonds.
- The interest rate is unsustainable high. When the interest rate is high, the market prices of bonds are low. When the interest rate falls, the bond prices rise with higher demand.


(Note: There are some exceptions. For example, in recent years Governments have been purchasing bonds through Quantitative Easing programmes (i.e. printing money). This artificially suppresses bond yields whilst interest rates have also been kept artificially low.)


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