2. Characteristics of bonds

To be effective issuing and investing in bonds, knowledge of their terminology, characteristics, and features is essential.

For example:

	A bonds is generally $1,000 and represents the amount borrowed from the bonds first purchaser.
	A bond issuer is said to be in if it does not pay the interest or the principal in accordance with the terms of the indenture agreement or if it violates one or more of the issues restrictive covenants.
	A bond contract feature that requires the issuer to retire a specified portion of the bond issue each year is called a .
	A bonds allows a bondholder or preferred stockholder to convert their bond or preferred share, respectively, into a specified number or value of common shares.

Suppose you read an article about the Golden Gate Bridge and Highway District bonds. It includes the following information:

Bridge Bonds Series A Dated 7-15-2005 4.375% Due 7-15-2055 @100.00

What is the issuing date of this bond?

7-15-2005

7-15-2055

If the coupon interest rate is 4.375% for the first six months and changes to a rate equal to the 10-year Treasury bond rate plus 1.3% thereafter, the bond is called a bond.

The contract that describes the terms of a borrowing arrangement between a firm that sells a bond issue and the investors who purchase the bonds is called the .

When are issuers more likely to call an outstanding bond issue?

When interest rates are lower than they were when the bonds were issued

When interest rates are higher than they were when the bonds were issued