Characteristics of Bonds Form groups of three to six persons each. Each person should select a company that has long-term debt in the form of bonds (or debentures). Pick one of the company's bonds, and note the interest rate on the bond. If the company does not list bonds individually, you may need to select one of the groups of bonds that it presents. Find out as much as you can about the factors that might explain the bond's interest rate. Among the items to look for are characteristics of the bond, such as the size of the issue, the length of the term, and any special features such as subordination, convertibility, and covenants, and char- acteristics of the company, such as its industry, its debt-to-equity ratio, and its interest-coverage ratio. Also, try to find out when the bond was issued and the level of prevailing interest rates at the time of issue. (Companies do not usually show the issue date in the footnotes to their financial statements. You might try looking at past annual reports to see when the bonds first appeared on the financial statement.) Prevailing interest rates may be represented by the rates on U.S. Treasury securities. Note the amount by which the interest rate of the bond exceeds the rate of a U.S. Treasury security of the same duration. After individual students have performed their independent research, you should get together and compare results. Do the factors you have identified explain the differences in rates across the compa- nies? How do the factors relate to the riskiness of the bonds? Is the amount by which the bond interest rate exceeds the U.S. Treasury rate related to the bond's riskiness?