Bond
What is a Bond?
A bond is a debt instrument used by corporations and governments to borrow money from investors.
![bd 1](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-1.jpg)
How it Works
A company may require funding for a proposed project.
![bd 2](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-2.jpg)
One way for the company to raise money for this is by issuing bonds.
![bd 3](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-3.jpg)
When issuing a bond, a company needs to offer some form of security.
![bd 4](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-4.jpg)
Providing the company can meet this criteria, it can ’sell’ its bonds to investors.
![nbd 5](https://seeaccountingnow.online/wp-content/uploads/2021/08/nbd-5.jpg)
Each bond in the issue will have a certain face value.
![bd 6](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-6.jpg)
This is how much the company will need to pay the bond holder — at the end of the bond term.
![bd 7](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-7.jpg)
The bond term is the time from issue to maturity.
![bd 8](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-8.jpg)
Each year, the issuing company pays interest on the bond.
![bd 9](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-9.jpg)
The interest paid will be in accordance with the bond’s coupon or stated rate.
![bd 10](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-10.jpg)
Furthermore, typically, bond interest is paid semi-annually.
![bd 11](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-11.jpg)
12 When issuing their bond, the bond’s issuer will consider the current level of interest rates.
![bd 12](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-12.jpg)
The issuer will set their bond’s coupon rate at or around this level.
![bd 13](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-13.jpg)
Then they issue the bond at what is known as par value.
![bd 14](https://seeaccountingnow.online/wp-content/uploads/2021/08/bd-14.jpg)
© R.J. Hickman 2020