Question

Mention and describe the characteristics of traditional bonds.
Mention and describe the characteristics of contemporary bonds.

Answer 1

The characteristics of traditional bonds are :
1. Coupons: Coupons are periodic interest paid annually or semiannually through the period of the bond.
2. YTM: Yield till maturity is the total realised return over the maturity of the bond. Higher the YTM lower the price of the bond and lower the YTM higher the price of the bond.
3. Par value : It is the amount paid out or received at the end of maturity of the bond.
4. Maturity : It is the time period for the flow of all coupons and par value value of the bond

Characteristics of contemporary bonds:
1. Municipality  bonds : Bond issued by Municipality for developmental work are munis bonds.These bond are exempt from federal and state taxes , hence it makes effective after tax yield more attractive
2. Junk Bonds: Bonds issued by lower rated companies . They have high risk involved hence YTM for such bonds are very high.
3. Zero Coupon Bonds: These are also called discount bonds and pay the par value at maturity without paying coupons in between.
4. Government bonds :These are bonds which are issued by government which are default free and tax exempt.They are default free because they are backed by taxing capability of the government.