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47+ Sample Bond Agreement Templates
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What Is a Bond Agreement?
There are different types of bond contracts. It can be a performance bond agreement, a bond purchase agreement, a corporate bond agreement, and more. The question is, what is a bond? A bond refers to an income instrument representing a loan that an investor offers to its borrowers, which can be a corporation or a government institution. Governments, states, municipalities, and companies use bonds to fund projects as well as operations. You can liken a bond agreement to an IOU. An IOU is an official paper that proves an entity’s financial obligation toward another entity. Moreover, a contract bond will include details about the principal loan due and the terms regarding payment. For corporations, they use these funds to expand their business, to purchase equipment and property, to start projects, to fund research, or to recruit employees.
According to a study conducted by FINRA in 2019, knowledge about investments in the U.S. is low because only one-third of the participants were able to answer the quiz correctly.
Also, several investors are confused about investing fees, where about 14% of the total respondents don’t think they pay for expenses and 17% claim that they have no idea how much to pay.
Additionally, 72% of the participants do the deciding for themselves when investing.
Terms Related to Bonds
To have a better understanding of bonds, one must know the terms related to it. So here are some terms related to bonds.
How To Purchase a Company Bond
Investing your money in bonds can be more complicated than investing it in stocks. Most often, only expert investors purchase bonds because the market of corporate bonds gives only little opportunity for small and novice investors. Nevertheless, one can buy recently issued company bonds from a broker or older bonds in OTC markets. With that said, here are ways to purchase a company or corporate bond.
Step 1: Try Purchasing New Bonds
When a company decides to trade bonds to increase its capital, it arranges deals with bankers or large investors to make those bonds available to the market. The pricing of these issues is uncomplicated and easy to understand. However, taking hold of these bonds can be challenging. You will need some connection with an institution or a banker that handles new bonds. New investors may find this problematic.
Step 2: Take Advantage of a Secondary Market
A secondary market comes to play after an initial offering. This market is where small investors access bonds quickly. However, one should be cautious. Usually, trades happen through the phone on through closed bond-trading systems. An ordinary investor can only participate with the help of a broker. Moreover, the prices in this type of market are difficult to understand.
Step 3: Do Some Research
If you plan to buy corporate bonds in a secondary market, do some research. Understand the pricings and keep an eye on the recent bond sales so you can compute for the spread or the markup. The spread indicates what the difference is between the selling price of a broker and the original price of the bond. A non-governmental agency, which is the FIRA or Financial Industry Regulatory Authority, offers information about recent bond pricings. So, before you purchase a bond from a broker, search for recent quotes, and compare.
Step 4: Keep an Eye on Your Broker
Bear in mind that buying corporate bonds requires more due diligence, which means you have to check your broker out. Get some advice from trade associations that keep track of the market. Also, they can do some research on your broker in detail.
Step 5: Opt For Public Exchange
Presently, one can trade bonds with the help of the New York Stock Exchange. The NYSE launched its system way back in 2007, which replaced the Automated Bond System with one that can also work for ordinary investors. Since their launch, more and more bonds are sold through their system. However, exchanged-traded bonds only make up a small percentage in the market.
What is an employee bond?
An employment bond is an insurance that safeguards an employer when employees perform dishonest or fraudulent acts. Typically, employers buy fidelity bonds for workers who can access the company’s assets (e.g., an accountant). This type of insurance reimburses a company in case an employee does a criminal act.
Is a bail bond also a type of investment?
Bail is money that serves as an insurance between a defendant and the court. Defendants can opt to pay bail with cash, yet many cannot since it requires a large sum of money. So, they ask help from a bail bondsman, who can post a bond for them. With that said, a bail bond is a surety bond that a bond company provides by commissioning bail agents. It ensures that a defendant will be released from jail.
How do you compute for the price of a bond?
You can use the YTM or yield-to-maturity formula. It is the total amount of money an investor anticipates if the bond reaches maturity. The rate of YTM is expressed annually. The YTM formula can be complex but it is useful in evaluating bonds. So, here’s the formula: YTM is equal to the nth root of the bonds face value over its present value. Then, you subtract one from the outcome.
A bond agreement is a document that protects an investor’s investment. Without one, the investor’s money is at risk of fraud. It is like giving away money without a cause. If you want to know what it looks like, check our sample templates above.