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What do terms in a prospectus mean to investors?

  • Callable bond - A callable bond means that the issuer has the right to repay the bond before it matures.
  • Convertible bond - Holder of a convertible bond has the right to convert the bond into a specified number of unissued shares of the issuer or a related company.
  • Coupon frequency - The regular intervals that interest payments are normally made, e.g. annually, semi-annually, quarterly.
  • Coupon rate - This is the rate at which the issuer pays interest on the principal to the bondholder each year. The coupon rate can be fixed, floating or even zero.
  • Credit Rating - Investor can refer to the credit rating of the issuer of the bonds, or of the bonds themselves, assigned by credit rating agencies. The credit rating agencies will assign higher rating to the bonds which, in their opinion, the bondholder may have a better chance of receiving a payment for the principal and interest of the bond.
  • Guarantor - Some bonds are guaranteed by a third party called a guarantor. If the issuer defaults, the guarantor agrees to repay the principal and/or interest to the bondholder.
  • iBond series - Issued by the Government of the Hong Kong Special Administrative Region, it is a series of retail bonds that has its half-yearly interest payments linked to the average year-on-year inflation measured by the Composite Consumer Price Index, subject to a minimum interest rate. Principal will be repaid in full, without adjustments based on inflation, at maturity.
  • Issuer - The party that borrows the money.
  • Maturity date - Bondholder will receive the principal and accrued interest on this date.
  • Principal - This is also called the par value or face value. It is the amount repaid to the bondholder when the bond matures.
  • Term - This is the life of the bond, i.e. the period (usually a number of years) over which the issuer has promised to meet its obligations under the bond.
  • Yield-to-maturity (YTM) - YTM is the rate of return anticipated on a bond if it is held until maturity. YTM is usually expressed as an annual rate of return.