Guarantor or Surety – The insurance company issuing the bond.This term is used most frequently in surety bonds. Obligee – The person or organization protected by the bond.Principal – The party who has initially agreed to fulfill the obligation which is the subject of the bond.
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State and federal government agencies require surety bonds for the purpose of reducing public responsibility for the acts of others, and the courts require bonds to secure the various responsibilities of litigants, including the ability to pay damages.Ī typical surety bond identifies each of three parties to the contract and spells out their relationship and obligations. Surety bonds are required in a significant number of business transactions as a means of reducing or transferring business risk. Under modern suretyship, an insurer’s promise of performance is available to meet a wide variety of business, governmental and individual needs. Under the terms of a bond, one party becomes answerable to a third party for the acts or non-performance of a second party. The obligation may involve meeting a contractual commitment, paying a debt or performing certain duties.
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annual coupon rate divided by number of coupon payments per year), t is the total number of coupon payments outstanding till maturity and F is the face value of the bond (i.e. If r is the interest rate prevailing in the market, c is the periodic coupon rate on the bond (i.e. Similarly, since the repayment of principal (maturity value) is a one-off payment at the end of the bond life, the present value of the maturity value is calculated using the formula for present value of a single sum occurring in future. Since coupon payments form a stream of cash flows that occur after equal interval of time, their present value is calculated using the formula for present value of an annuity.
#BOND PRINCIPAL DEFINITION PLUS#
The value/price of a bond equals the present value of future coupon payments plus the present value of the maturity value both calculated at the interest rate prevailing in the market. final bullet payment which equal to the face value (maturity value) of the bond.