Bonds and Debentures

by Natalie MacLellan on July 20, 2010

in Types of Investments

Post image for Bonds and Debentures

A bond is a loan to a government or company that is secured by the government’s power to tax or by specific company assets. Terms typically range from one year to 30 years.

Interest is usually paid at a fixed rate, determined when the bond is issued. The rate will depend on interest rates and the credit rating of the issuer at the time the bond is issued. For example, the rate will be relatively higher if there is a greater risk that the issuer will default on its payment obligations.

If the company is dissolved, bondholders have a right to a portion of the company’s remaining assets. They rank behind tax authorities, employees and creditors but ahead of preferred and common shareholders.

A debenture is a loan to a company that is not secured by specific assets, but may be secured by the issuer’s general assets. Debentures work the same way as bonds.

This has been the fifth post in our Investments at a Glance Series. Next, we look at more complex fixed income securities: mortgage-backed securities and stripped bonds.

Related posts:

  1. Fixed income securities When you buy a bond or other fixed income security,...
  2. Cash and cash equivalents Cash and cash equivalent investments include money in your bank...
  3. GICs and Money Market Funds Welcome back to our Investments at a Glance summer series....
  4. Investment Funds In this our latest post in the Investments at a...
  5. Strips and mortgage-backed securities Continuing our Investments at a Glance summer series, today we...

Share & Bookmark This Story!

{ 0 comments… add one now }

Leave a Comment

You can use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Previous post: Fixed income securities

Next post: Strips and mortgage-backed securities