Bonds

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CONTENTS
Introduction of bonds……………………………………………..01 Characteristics of Bonds…………………………………………01 Types of Bonds…………………………………………………… 06 Bonds Market……………………………………………………… 08 Introduction of Pakistan bond market……………...................08 How Bonds Trade……………………………………………….….09 Bond Price Variations……………………………………………..09 Bond valuation…………………………………………..................09 Types of bonds trade in Pakistan……………………………….10 Government Debt Securities……………………………………..10 Characteristics of MTBs and PIBs………………………………12 Pakistan Investment Bonds……………………………………... 12 Auction Mechanism………………………………………………...13 Corporate Bond Market…………………………………………....13 Conclusion…………………………………………………………...14 Reference………………………………… ……………….………...14 Summary of Articles………………………………………………..15

Introduction of bonds
Definition:
A bond is basically a loan. The owner of a bond has given the issuer-whether it is a corporation, a government or another agency-a sum of money that can be used at any point. In exchange, the issuer will pay interest to the bondholder over a period of time and will eventually return the initial amount loaned, called the principal. Unlike a stock, the bondholder does not own a part of the company. Because a bond is basically a loan, they are often called "debt securities" because they represent a debt obligation from the issuer to the bondholder. Bonds are also known as fixed income securities. The reason for this name is that at the time of the purchase of a basic bond, the amount of income and the timing of the payments are known to the purchaser. Bonds are called debentures and debt instruments as well. CHARACTERISTICS OF BONDS

At the time of purchase, the characteristics of the bond will be stated in the certificate. Bonds have many characteristics such as the way they pay their interest, the market they are issued in, the currency they are payable in, protective features and their legal status. Bond issuers may be governments, corporations, special purpose trusts or even non-profit organizations. Usually it is the type of issuer or the particular nature of a bond that sets it apart in its own category. Here are the items that will be specified on most (but not all) bonds Time to Maturity:

This is the date the issuer will make a lump sum payment to return the principal to the bondholder, which eliminates the debt.

Principal, par value, face value:
These are three names for the same item, the amount that will be returned to the bondholder at maturity. The most common face value is $1000. Coupon:
This is the interest payment that will be made to the bondholder. Generally, a percentage of the face value will be fixed which will represent the annual interest rate on the loan. Also, a timetable will be set up for the payment of the coupons, usually semiannually. Not all bonds pay out interest through coupon payments. TYPES OF BONDS

Corporate Bonds
Municipal Bonds
Treasury Bonds
Callable Bonds
Convertible Bonds
Agency Bonds/Mortgage-Backed Securities
Zero-Coupon Bonds
Junk Bonds
Corporate Bonds:
Corporate bonds are debt instruments issued by companies to raise capital. Corporate bonds tend to be more risky than government bonds because they are backed by individual corporations and not by the full faith and credit of the Government. Municipal Bonds:

State or local governments issue municipal bonds to fund civic projects. The potential advantage of investing in "munis" is that bonds deemed to be public purpose bonds typically pay interest free from federal and/or state income tax. There are some exceptions involving alternative minimum taxes. In addition, any capital gain earned from the sale of a municipal bond is fully taxable and may in fact be taxed as income if the bond was purchased at a steep enough discount or is sold for a gain prior to its maturity.

Treasury Bonds:
A negotiable, coupon-bearing debt obligation issued by the government and backed by its full faith and credit, having a...
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