Characteristics Of Mortgage Bonds

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When a firm wants to take on long term debt, there are two main sources that it might consider. It can certainly borrow from its bank and obtain a loan in the traditional way, by signing a loan agreement or promissory note. It can also borrow directly from the market by issuing bonds. So, let 's take a look at what bonds are and some of their main features and characteristics. At its simplest, a bond is a financial instrument, issued by the firm the represents its intentions to borrow for the long term and its promise to repay.

This is certainly not a new type of instrument; they have been around for a very long time. Let 's take a look at an early example. Here is a bond that was issued in 1623 by the Dutch East India Company in the amount of 2400 Florence. This is by no means the earliest bond ever, but it is the earliest one that I could find a picture of. Let 's consider other than companies like this, who is issuing bonds in the market
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A mortgage bond has some kind of collateral associated with it, just like your mortgage loan to buy a house, has the house as collateral, a mortgage bond is going to have some type of collateral securitizing it. A convertible bond is able to be converted into a set number of common shares of the issuing company and that is part described in the indenture of how many shares the bond would convert into.

So, it gives the owner the opportunity to swap out their bond for some number of common shares. It could go from being a creditor to being an investor, an equity owner, if they choose to convert their bonds. Callable bonds, on the other hand, can be retired before its maturity date, at the option of the issuing company. Now, a convertible bond gets converted into common stock at the option of the bond holder. A callable bond can be retired early and that is the decision of the issuing
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