The Basics Of Bonds – Explained


In this video we will cover the basics of bonds. Bonds, which are a fixed income instrument, return a fixed amount of money as interest on your invested amount. Through the example of a fictitious company R&S Ltd., we explain the primary features of a bond and how the bond market works. We have explained features such as face value of a bond, bond maturity and interest rate or coupon rate. We have also covered the main reasons that the prices of bonds fluctuate. The 2 main reasons for the movement in the prices of bonds are: 1. Credit Risk – The probability of a company defaulting or going bankrupt. If the credit risk (which is generally determined by the rating given by a rating company) of a company increases, the price of the bond is expected to fall. 2. Interest Rates – As the interest rates in general rise in the economy, the prices of bonds start to fall.


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