2.5 Bond Certificates Flashcards
What is the principal?
It is the amount the investor lends to the borrower when he/she buys the bond.
It is the amount paid at maturity
It is usually equivalent to the par value of the bond which is typically $1k
What are bearer’s bonds?
They are old-fashioned bonds which have coupons attached to them and no owner’s name printed on them
What is another name for bearer’s bonds?
Coupon bonds
What are the disadvantages of the bearer’s bonds?
1) They can be easily stolen as they are not registered to a specific owner
2) Their owners can receive interest payments anonymously, making tax avoidance easier.
How bearer bonds can be redeemed?
Either the coupon can be presented or the bond certificate at the maturity
Are bearer’s bonds still in circulation?
They have been phased out and if anyone still possesses them, they need to present an ID while redeeming them
What are registered bonds?
They are certificates issued to the bondholder with no coupons attached and the owner’s name printed on the certificate.
How do registered bondholders redeem their bonds?
The issuer’s transfer agent sends the bondholder interest when payments are due and sends the principal at maturity.
How can registered bonds be transferred or sold?
The registered bonds can be transferred or sold when the owner signs off and presents the endorsed certificate to the transfer agent. The transfer agent will then cancel the certificate and issue a new one to the new owner.
Registered bonds have been supplanted with book-entry bonds. What are they?
1) Owners of book entry bonds do not receive certificates.
2) There is a master certificate for each bond issue whose ownership is recorded at a central securities depository
What does “bonds being held in street name” mean?
1) It means that brokers/dealers are listed as the owners rather than their customers.
2) The customers are said to be beneficial owners, as they retain the transfer rights and receive interest payments.
3) The broker-dealer maintains the record of customer’s ownership.
How do owners of book-entry bonds receive interest payments?
The issuer’s transfer agent forwards all interest and principal payments to the depository, which delivers them to the brokerage account with the brokers/dealers.
