bond-basics

Interest Rate

The rate expressed as a percentage of the Principal amount of a Bond used to determine the amount of Interest to be paid by the Issuer or the Borrower.

The highest rates are customarily paid on the longer Maturities. These rates are established by the Underwriter for the Bonds through the Negotiated Sale or the Competitive Sale and determined by the general level of Interest Rates and Yields prevailing in the market at the time of the sale. Most Bonds are issued at a tax-exempt Interest Rate, but, while the Bonds are outstanding, some event (e.g., a change in federal income tax law or a failure to satisfy the requirements to maintain the Bonds as Tax-Exempt Bonds) could occur that causes the Bonds to bear Interest at a taxable Interest Rate. Other Bonds may be initially issued at taxable Interest Rates, or may bear Interest that is taxable for federal income tax purposes, but exempt for state income tax purposes.

Preparing Bonds

Learn about over various terms and concepts that may arise while preparing a bond issue.


See Also

Interest

The amount of compensation for the use of borrowed money paid to the bondholders by the issuer or the borrower.

Interest Payment Dates

The dates when interest on a bond is payable, usually semiannually and usually on the first or fifteenth day of the month.

Fixed Interest Rate

An interest rate which is set at the time a bond is issued and which does not vary during the term of the bond.

Variable Interest Rate

The interest rate on a bond which varies according to a formula set forth in the bond or the indenture or bond resolution/ordinance or based on the interest rate required by a remarketing agent to remarket the bonds at par.

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Average Life

Number of years to the point at which half of the principal of the bond will have been retired, which in turn gives an indication as to how fast the principal is expected to amortize.