Bonds are fixed-rate debt instruments. It means that those who invest in bonds get a fixed interest payment over the bond’s lifetime. However, there are some variations of bonds that come with variable or increasing coupon rates. A step-up coupon bond is one of them. What is a Step-Up Coupon …

Bonds are debt instruments issued by corporations or governments. The primary purpose of issuing bonds for these entities is to collect finance for their operations. Mostly, the investor gets periodic interest payments for their investment. The repayment of the principal amount depends on the type of bond. Usually, bond issuers …

What is an Interest Rate Swap? Interest rate swaps are an example of financial derivative contracts. With interest rate swaps, entities can exchange one source of interest payments with another. There is also another party that agrees to swap the stream with the entity. The interest rate swap occurs based …

What is a Letter of Credit? A letter of credit is a letter from a bank that guarantees payments. The bank assumes the responsibility for the payment on behalf of a buyer, also the bank’s customer. It makes the guarantee to a seller or the seller’s bank. Usually, letters of …

Bonds are debt instruments issued by governments or corporations. These represent an issuer’s promise to make scheduled interest and principal payments to the buyer. In essence, bonds are a way for entities to obtain loans from investors. Usually, they are unsecured debt instruments. However, sometimes, entities may also issue secured …

What is an Indenture? An indenture is a legal and binding agreement or document between multiple parties. These come with indented sides. These contracts bind one party to work for another for a set period of time. These were the historical uses of the word indenture. However, they have also …

What is a Zero-Coupon Bond? A zero-coupon bond is a debt security that does not come with any interest payments. Hence, the coupon rate on these bonds is zero. However, these bonds come with a deep discount. Therefore, it allows profits at maturity for investors when they redeem the bond …

We have previously discussed fixed-income instruments such as fixed-rate bonds, callable putable bonds. In this article, we are going to look into floating-rate notes. What is a Floating Rate Note? A floating-rate note (FRN) is a debt instrument that comes with a floating or variable interest rate. The interest rate …

Asset-backed securities are a collateralized pool of assets. These include loans, credit card debt, auto debt, leases, royalties, and other loans. Similarly, they come due to a process known as securitization. With securitization, issuers pool assets together into one group. Then they sell this group of assets to investors. There …

Bonds are debt instruments that governments and companies use to raise finance. They can use this finance according to their needs. The people who pay for it become the lenders. After a specific period, the borrower entity must repay the amount to the people from whom they have taken the …