What Is A Bond?

A certificate of obligation usually issued by a corporation to pay money secured by mortgage or other guarantee. It is usually an interest bearing certificate issued in denominations of $1,000. There are numerous sorts of bonds, some being issued by corporations, others by municipalities or governments, and some by individuals.

Government securities are generally designated as bonds, although they were many years ago known as stocks. Some of the securities issued by New York City are still designated as stocks, but American municipalities generally designate their securities as bonds. Railroads and other corporations have both bonds and stocks.

What Is An Adjustment Bond?

A bond issued for the purpose of adjusting the finances of a company, usually at a time of reorganization. The Atchison, Topeka & Santa Fe Railroad system was reorganized in 1897. Some arrangement with the old preferred stockholders and the holders of the general mortgage bonds was necessary. Fixed charges had to be reduced, but at the same time the reorganization committee could not avoid giving the holders of a large proportion of the old securities something more tangible than a mere preferred stock. A second mortgage bond, entitled to receive interest only in case the same had been earned, was executed and the holders of the bond were not allowed to foreclose before maturity in the event of the interest should not be paid. The interest on this particular issue was to be accumulative after 5 years, but as far as any positive guarantee of interest being currently paid was concerned, the issue was simply in the same class as the ordinary accumulative preferred stock. This issue of bonds was a compromise for the benefit of the holders of old securities, and, therefore, was given the title of "adjustment bond;" since issued by other companies.

What Are Convertible Bonds?

Usually Convertible Bonds are a direct obligation of the corporation issuing them and have a fixed rate of interest, but may not be a direct lien on the property; in some instances they are a direct lien on the railroad, or if issued by other corporations, on the real property.

Holders of convertible bonds may have the right to convert them into stock at such times as they may elect, according to the terms of conversion stipulated in the bond. If a direct lien on good security, convertible bonds are a good investment.

What Is A Guaranteed Bond?

A bond having the payment of its principal and interest guaranteed by another corporation. When a railroad leases another railroad frequently it guarantees the principal and interest on the bonds of the leased road. This guarantee may be shown on the bond itself, or it may be stipulated in the lease.

What Are Investment Bonds?

These bonds are issued in various denominations and at all rates of interest from 3% to 7%. They embrace various railroad bonds, public utility issues, industrial issues, bonds on mines and other enterprises, in addition to government or municipal securities.

What Is An Optional Bond?

A bond maturing at a specified date, which may be redeemed after a stipulated date at the option of the company issuing it.

What Is A Registered Bond?

It is one bearing the name of the owner and registered in his name. This style of bond is transferable and contains a form for assignment and transfer. When a registered bond is transferred, a new bond is issued to take its place. As is the case with stock, any change of address should be sent to the company. Some coupon bonds are registered, but not as a rule.

What Is A Registered Coupon Bond?

A registered coupon bond is one on which the principal may be paid only to the person in whose name it is recorded. The interest coupons, however, are payable to bearer and may be collected by any holder.

What Are Gold Bonds?

Bonds on which principal and interest are payable in gold. Prior to 1896, when there was doubt in the minds of investors whether the United States would maintain the gold standard, corporations found it necessary to insert what was called the "gold clause" in mortgages issued to insure investors purchasing the bonds. It was difficult to float issues which did not include the gold clause. The reason was that in the event of this country going on a silver basis of currency, the principal and interest of the bonds would have been payable in depreciated money, and the investor might lose as much as one-half of his principal. The "gold clause" is now unnecessary, as all doubt about the permanency of our gold standard has passed.

What Are Municipal Bonds?

Those issued by a town or city having a charter of incorporation conferring privileges of local self-government.