A bond is a type of debt or long term promissory note, issued by the borrower, promising to pay its
holder a predetermined and fixed amount of interest per year and the face value of the bond at
maturity (Keown, 221.)
The term debenture applies to any unsecured long term debt. Since these bonds are unsecured, the
earning of the issuing corporation is of a great concern to the bondholder. These are viewed as riskier
than secured bonds, which mean they must provide investors with a higher yield than secured bonds.
Subordinated debenture is a debenture that is subordinated to other debentures in terms of its
payments in case of insolvency (Keown, 222).
A mortgage bond is a bond secured by a lien on real property. Typically, the value of the real property is
greater than that of the mortgage bonds issued. This provides the mortgage bondholders with a margin
of safety in the event the market value of the secured property declines (Keown, 222).
Eurobond is a bond issued in a country different from the one in which the currency of the bond is
denominated. A bond issued in Europe or Asia by an American company that pays interest and principal
to the lender in U.S. dollars (Keown, 222).
Convertible bond is a debt security that can be converted into a firm’s stock at a pre-specified price
(Keown, 222).
To value a bond the process requires knowing three important elements: The amount and timing of the
cash flows to be received by the investor, the time to maturity of the bond, and the investor’s required
