Financial Management: Core Concepts, Third Edition

6.5 Some Bond History and More Bond Features

Institutions originally issued bonds as bearer bonds, meaning that whoever held the bond was entitled to the interest payments and the principal repayment. The bondholder would “clip” a coupon as the interest payment date arrived and present the coupon to the bond’s trustee for payment. The trustee was typically a bank. After clipping all the coupons, only the corpus, or body of the bond, remained. The bondholder presented the corpus to the trustee at maturity for repayment of the principal. Whenever one owner sold the bond to the next, the price was a reflection of the current yield and the remaining or unclipped coupons and bond principal. When the owner wished to sell the bond prior to maturity, ...