Question

Bonds can be -Select- -rate bonds with a constant coupon rate over the life of the bond, or they can be -Select- rate bonds with a coupon rate that varies over time depending on the level of interest rates. [-Select- bonds pay no annual interest but are sold at a -Select- par, thus compensating investors in the form of capital appreciation. An original issue discount (OID) bond is any bond originally offered at a price -Select- par value. -Select- bonds are exchangeable at the option of the holder for the issuing firm's common stock. Bonds can be issued with warrants giving the holder the option to purchase the firm's stock for a stated price, thereby providing a capital gain if the stock's price rises. -Select- bonds contain a provision that allows holders to sell them back to the company prior to maturity at a prearranged price. An -Select- ✔ bonds pay interest only if the firm has earnings, while an indexed (purchasing power) bond bases interest payments on an inflation index to protect the holder from inflation. Mortgage bonds are backed by -Select- . First mortgage bonds are senior in priority to claims of second mortgage bonds. Debentures are long-term bonds that are not secured by a mortgage. Subordinated debentures are bonds having claims on assets only after senior debt has been paid in full in the event of liquidation. -Select- bonds are rated triple B or higher, and many banks and other institutional investors are legally limited to only holding these bonds. In contrast, junk bonds are high-risk, high-yield bonds.

Answer 1

Bonds are versatile debt securities that come in different types such as fixed-rate, variable-rate, zero-coupon, and convertible, among others, each with unique characteristics in terms of interest payments, risks, and backing assets.

Step-by-step explanation:

Bonds can be fixed-rate bonds with a constant coupon rate over the life of the bond, or they can be variable-rate bonds with a coupon rate that varies over time depending on the level of interest rates. Zero-coupon bonds pay no annual interest but are sold at a discount to par, thus compensating investors in the form of capital appreciation. An original issue discount (OID) bond is any bond originally offered at a price below par value. Convertible bonds are exchangeable at the option of the holder for the issuing firm's common stock. Bonds can be issued with warrants giving the holder the option to purchase the firm's stock for a stated price, thereby providing a capital gain if the stock's price rises. Puttable bonds contain a provision that allows holders to sell them back to the company prior to maturity at a prearranged price. An income bond pays interest only if the firm has earnings, while an indexed (purchasing power) bond bases interest payments on an inflation index to protect the holder from inflation. Mortgage bonds are backed by real estate or physical assets. Investment-grade bonds are rated triple B or higher, and many banks and other institutional investors are legally limited to only holding these bonds. In contrast, junk bonds are high-risk, high-yield bonds.

Answer 2

Bonds are debt instruments with various features such as fixed or variable interest rates, zero-coupon, OID, convertible, and puttable options, as well as being secured or unsecured.

Step-by-step explanation:

Bonds are essentially I owe you notes issued by an entity to raise capital, with distinct features such as face value, coupon rate, maturity date, and terms of the interest payment. Fixed-rate bonds have a constant coupon rate over the life of the bond, while variable-rate bonds have a coupon that varies with prevailing interest rates.

Zero-coupon bonds offer no annual interest but are sold at a discount to par value, delivering gains through capital appreciation. An original issue discount (OID) bond is issued below par value. Convertible bonds can be exchanged for common stock of the issuing firm.

Bonds with warrants allow investors to purchase stock at a set price, potentially giving a capital gain if stock prices rise. Puttable bonds let investors sell the bond back to the issuer at a predetermined price before maturity. Income bonds only pay interest if the company has earnings, whereas indexed bonds adjust interest payments according to an inflation index.

Mortgage bonds are backed by specific assets. Debentures are unsecured, with subordinated debentures being lower in priority. Bonds with investment-grade ratings (triple B or higher) are favored by institutional investors, unlike high-yield, high-risk junk bonds.