Question

Define the following types of bonds:

a. Catastrophe bond.

b. Eurobond.

c. Zero-coupon bond.

d. Samurai bond.

e. Junk bond.

f. Convertible bond.

g. Serial bond.

h. Equipment obligation bond.

i. Original-issue discount bond.

j. Indexed bond.

Short answer

a. – Issued by an insurance company

b. – Issued in one country but sold in other

c. – Thesepay no coupons

d. –These are yen-dominated bonds

e. -These are low rated speculative bonds

f. - These may be exchanged at bond holder’s discretion

g. - It is an issue in which a firm sells bonds with staggered maturity dates

h. - It is a bond that is issued with specific equipment pledged as collateral

i. – These are issued intentionally with low coupon rates

j. – These make payments tied to a general price index or the price of a particular commodity.

Step-by-step solution

Definition of Catastrophe Fund

It is a bond typically issued by an insurance company. It is similar to an insurance policy where an investor receives coupons and par value but incurs loss in the event of a major claim filed against the insurer

Definition of Euro Bond

It is a bond which is issued in one country but sold in other national markets.

Definition of Zero-coupon Bond

These are bonds that pay no coupons but pay at par value on maturity.

Definition of Samurai Bond

These bonds are yen-dominated bonds which are sold in Japan by non-Japanese issuers called Samurai bonds.

Definition of Junk Bond

These are those speculative bonds which are rated low and hence are called junk bonds

Definition of Convertible Bond

These are those bonds that may be exchanged at bond holder’s discretion for a specific number of shares of stock. This option is availed by the ‘bondholder’ by paying and accepting a lower coupon rate on the security.

Definition of Serial Bond

It is an issue in which the firm sells bonds with staggered maturity dates. As bonds mature, the principal repayment burden of the firm is spread over time. It is more like sinking funds and but do not include call provisions.

Definition of Equipment Obligation Bond

It is a bond that is issued with specific equipment pledged as collateral against the bond.

Definition of Original – issue discount Bond

These are bonds which are issued intentionally with low coupon rates that cause the bond to sell at a discount from par value. These bonds are less common than coupon bonds issued at par.

Definition of Indexed Bond

These are bonds that make payments tied to a general price index or the price of a particular commodity