The current yield on a bond is the annual coupon payment divided by the current market
YTM, or yield to maturity, is the rate of interest earned on a bond if it is held to
Yield to call (YTC) is the rate of interest earned on a bond if it is called.
interest rates are well below an outstanding callable bond's coupon rate, the YTC may be a
more relevant estimate of expected return than the YTM, since the bond is likely to be called.
Corporations can influence the default risk of their bonds by changing the type of bonds they
Under a mortgage bond, the corporation pledges certain assets as security for the bond.
All such bonds are written subject to an indenture, which is a legal document that spells out
in detail the rights of both the bondholders and the corporation.
A debenture is an unsecured
bond, and as such, it provides no lien against specific property as security for the obligation.
Debenture holders are, therefore, general creditors whose claims are protected by property
not otherwise pledged.
Subordinated debentures have claims on assets, in the event of
bankruptcy, only after senior debt as named in the subordinated debt's indenture has been
paid off. Subordinated debentures may be subordinated to designated notes payable or to all
A development bond is a tax-exempt bond sold by state and local governments whose
proceeds are made available to corporations for specific uses deemed (by Congress) to be in
the public interest. Municipalities can insure their bonds, in which an insurance company
guarantees to pay the coupon and principal payments should the issuer default.
the risk to investors who are willing to accept a lower coupon rate for an insured bond issue