101 Concepts for the Level I Exam
Concept 78: Basic Features of a Fixed-Income Security
The basic features of a fixed income security include:
Issuer: Bonds can be issued by:
- supranational organizations
- sovereign governments
- non-sovereign governments
- quasi-government entities
- corporate issuers
Maturity: Also known as a bond’s tenor.
- If original maturity is one year or less; bond is called money market security.
- If original maturity is more than a year; bond is called capital market security.
Par value: The principal amount that is repaid to bond holders at maturity; also known as face value, maturity value or redemption value.
- If market price > par value; bond is trading at a premium.
- If market price < par value; bond is trading at a discount.
- If market price = par value; bond is trading at par.
Coupon rate and frequency:
- Coupon rate is the percentage of par value that the issuer agrees to pay to the bondholder annually as interest.
- This can be a fixed rate or a floating rate.
- The coupon frequency may be annual, semi-annual, quarterly or monthly.
- Bonds can be issued in any currency.
- Dual currency bonds pay interest in one currency and principal in another currency.