Explain general features of Debt Instruments. Briefly describe the different Debt Instruments that are in use in the Financial Markets.
Debt instruments are financial tools used by borrowers to raise capital by borrowing funds from investors, typically with an agreement to repay the principal amount with interest over a specific period. These instruments are a fundamental part of the financial markets, offering investors a way to earn returns while providing borrowers with the capital they need. The general features of debt instruments are as follows:
1. Principal Amount (Face Value): This is the amount that the borrower (issuer) agrees to repay at the maturity date. It is the original sum borrowed, also known as the face value or par value.
2. Interest Rate (Coupon Rate): Debt instruments typically offer regular interest payments to investors, usually as a fixed percentage of the principal amount. This is known as the coupon rate. The interest is typically paid periodically, such as quarterly, semi-annually, or annually.
3. Maturity Date: Debt instruments have a predetermined maturity date, at which point the principal must be repaid in full. The maturity date can vary from _________ ___ _________ _______ _______ __________ ________.
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