Final answer:
A bond payable to whoever holds it is in bearer form. Bonds carry a face value, coupon rate, and have a set maturity date. The value of a bond is influenced by market interest rates, allowing for calculation of its present value.
Step-by-step explanation:
A bond that is payable to whomever has physical possession of the bond is said to be in bearer form. Bonds are essentially debt securities; when an entity wants to raise capital, it can issue bonds to investors in place of taking a traditional bank loan. The bond has several key components:
- The bond's face value, which is the amount the borrower agrees to pay back the investor at the bond's maturity.
- The coupon rate or interest rate, which is typically paid semi-annually but can vary in frequency.
- The maturity date, which is when the borrower repays the face value of the bond and the last interest payment.
Based on the interest rate when the bond is issued, which is influenced by market interest rates, an investor can calculate the bond's present value. This is the most an investor would be willing to pay for the bond currently and it might not necessarily be equal to the bond's face value. Corporate bonds, municipal bonds, state bonds, and Treasury bonds are various types of bonds issued by different entities for financing.