This section is from the book "Elementary Banking", by John Franklin Ebersole. Also available from Amazon: Elementary Banking.
Bonds are certificates of indebtedness, really promissory notes, of a corporation, under the terms of which the owner is entitled to the payment of the principal, when due, and interest at a fixed rate payable at fixed periods. Bonds are frequently secured by the pledge of some specific security for their payment and take precedence over any stock outstanding, as to payment. A stockholder is an owner; a bondholder is a creditor with an obligation having a definite maturity. Bonds are classified in various ways but chiefly as to the evidence of ownership and transfer: (1) Registered bonds have the owner's name recorded on the books of the company, and interest when due is paid to the registered owner. This class of bond is similar to preferred stock in the way title is transferred and interest paid; (2) with registered coupon bonds, the principal is registered on the books of the company in the name of the owner and transfer of ownership is necessary. The interest, however, is paid with coupons which may be cashed by bearer when due, being merely small promissory notes for the stipulated interest rate, a coupon maturing and being detached for payment at each interest period; (3) coupon bonds are the most easily negotiable of any. Both principal and interest are payable to bearer on presentation when due. There are many other classes of stocks and bonds but the above-mentioned are the principal kinds. Any may be used as collateral for a bank loan, provided they are in proper negotiable form and represent proper value. Stock certificates would have to be indorsed in blank or ownership properly assigned. The same provisions would be necessary with registered or registered coupon bonds. The bank would form its own estimate of the value of stocks and bonds as collateral, its opinion being based upon current quotations, book value and other like factors.