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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.

Currency denomination:

  • Bonds can be issued in any currency.
  • Dual currency bonds pay interest in one currency and principal in another currency.

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