What is the difference between a bond indenture and a bond certificate?

Answer and Explanation:

A bond indenture is a legal agreement made between the investor and the issuer during issuing of a bond that describes the features of the bond, restrictions given to the issuer, and steps that would be undertaken if payment of the bond is not made on time by the issuer.

Thereof, what is the difference between a bond agreement and a bond indenture?

In simplest terms, a bond indenture is the contract between the bond issuer and an investor. The contract outlines the terms of the bond, the promise of the issuer and your rights as an investor. A prospectus is a formal and legal document that presents details about the structure and goals of the issuing bond company.

Similarly, what is a bond indenture what provisions are usually included in it? A bond indenture is the contract between the bond's issuer and the bondholder. The face value of the bond, the interest rate, the interest payment dates, and the maturity date will most likely be. recorded on the bond indenture.

In this way, what is a bond indenture?

A bond indenture is the contract associated with a bond. The terms of a bond indenture include a description of the bond features, restrictions placed on the issuer, and the actions that will be triggered if the issuer fails to make timely payments. The dates when interest payments will be made to bondholders.

What is the function of a trustee as related to the bond indenture?

A bond trustee is hired by a bond issuer and oversees the implementation of a bond or trust indenture, which is a contract between a bond issuer and a bondholder. The trustee has a fiduciary responsibility to act on behalf of the issuer, rather than in its own interests.

39 Related Question Answers Found

What does this Indenture mean?

An indenture is a legal contract that reflects or covers a debt or purchase obligation. It specifically refers to two types of practices: in historical usage, an indentured servant status, and in modern usage, it is an instrument used for commercial debt or real estate transaction.

What is the most important detail of a bond indenture?

Between bond issuers and bondholders, an indenture is a legal and binding contract specifying all the important features of a bond, such as its maturity date, the timing of interest payments, method of interest calculation and callable or convertible features, if applicable.

Why do people buy bonds?

Investors buy bonds because: They provide a predictable income stream. Typically, bonds pay interest twice a year. If the bonds are held to maturity, bondholders get back the entire principal, so bonds are a way to preserve capital while investing.

What is a bond certificate?

A bond certificate is a legal document describing the indebtedness of a borrower and the terms under which that indebtedness will be paid back to the investor. The entity that issues a bond certificate is referred to as the issuer. The rate of interest to be paid on the borrowed funds.

What are bond ratings and why are they important?

Bond ratings are important not only for their role in informing investors, but also because they affect the interest rate that companies and government agencies pay on their issued bonds.

Why is it called a sinking fund?

Based on the history of sinking funds being used to pay down the national debt in 18th century England, my best guess is that it is called “sinking” fund because the debt obligation is slowly “sinking”, or debt is being paid down over time.

What is an advantage of government bonds?

Government bonds have the following advantages: Risk is usually relatively low compared to equities, as interest and principal will be repaid provided the relevant governments do not default on their bonds. Bonds can be an excellent diversifier, as they frequently perform well when other asset classes perform badly.

What are debentures in simple terms?

A debenture is one of the most typical forms of long term loans that a company can take. It is normally a loan that should be repaid on a specific date, but some debentures are irredeemable securities (sometimes referred to as perpetual debentures). The majority of debentures come with a fixed interest rate.

What is the purpose of a bond indenture?

An indenture agreement is the formal contract between a bond issuer and the bondholders. It sets forth the details of all the terms and conditions of the bonds, such as the exact day of their maturity, the timing of the interest payments and how they are calculated, and the details of any special features.

What do you mean by indenture?

Definition of indenture. (Entry 1 of 2) 1a(1) : a document or a section of a document that is indented. (2) : a formal or official document usually executed in two or more copies. (3) : a contract binding one person to work for another for a given period of time —often used in plural.

What is a bond trust indenture?

A trust indenture is an agreement in a bond contract made between a bond issuer and a trustee that represents the bondholder's interests by highlighting the rules and responsibilities that each party must adhere to. It may also indicate where the income stream for the bond is derived from.

What is a term bond?

A term bond refers to bonds from the same issue with the same maturity dates. In effect, term bonds mature on a specific date in the future and the bond face value must be repaid to the bondholder on that date. The term of the bond is the amount of time between bond issuance and bond maturity.

What does puttable mean?

Puttable bond (put bond, putable or retractable bond) is a bond with an embedded put option. The holder of the puttable bond has the right, but not the obligation, to demand early repayment of the principal. The put option is exercisable on one or more specified dates.

What does it mean to call a bond?

Callable or redeemable bonds are bonds that can be redeemed or paid off by the issuer prior to the bonds' maturity date. When an issuer calls its bonds, it pays investors the call price (usually the face value of the bonds) together with accrued interest to date and, at that point, stops making interest payments.

How can a bond indenture protect the investor?

Congress passed the Trust Indenture Act of 1939 to protect bond investors. It prohibits the sale of any debt securities in a public offering unless they are issued under a qualified indenture. The Securities and Exchange Commission (SEC) administers the TIA.

What do bond ratings mean?

A bond rating is a grade given to a bond by various rating services that indicates its credit quality. It takes into consideration a bond issuer's financial strength or its ability to pay a bond's principal and interest in a timely fashion.

Whats a secured bond?

Bail vs. Bond. There are two types of bonds - secured and unsecured. A secured bond means that you actually pay money or bail property to secure your release. An unsecured bond or surety bond means you sign a document that says you will pay a certain amount of money if the defendant breaks his/her bond conditions.