Bond is a non-negotiable (debt) security, which can be issued by companies, Governments, municipalities or banks.
The company issuing bonds undertakes to pay to the investor (bond holder) the main debt sum - the nominal value and interest that were stipulated in the bond issuing provisions - on the terms determined beforehand.
Nominal value of the bond is the minimum sum determined in advance which the company borrows and the investor lends. It is the bond unit. Usually the nominal value of a bond equals 100 Litas, Euros or other currency units.
The interest rates can be paid differently. It depends on the coupon type and periodicity.
Bonds can be with the fixed or floating coupon (or with the fixed or floating interest rate).
Fixed coupon (fixed interest rate) is the interest rate presented in the exact number terms. For example, 10 per cent of annual interest. The investor, while acquiring bonds with the fixed interest rate, knows what interest volume will be paid to him.
Floating coupon (floating interest rate) is the interest rate expressed by the formula where one of the components is the floating value. The investor, while acquiring bonds with the floating interest rate, does not know what interest volume will be paid to him; however, the formula or rule, according to which the interest will be calculated, is indicated. For example, LIBOR 6 months + 0.5 %.
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