Maturation of Bonds
As stated previously, every bond has a payment date, which is also called the maturity date. The holder of the bond on that date receives the payment even if the holder is not the same person that purchased the bond on the issue date. It is reasonable to assume that the bondholder is, indeed, not the same person who bought it since like any other securities on the stock exchange; bonds often change hands between different investors.
The bondholder receives interest on a specified date, which is called the “coupon date”. This date is officially published by the stock exchange, and it is usually two weeks before the day on which the interest is to be paid.
Firsthand Sale of Bonds
The first sale of a bond by the issuer is called a firsthand sale. The initial sale is called an issue. As part of the issue, the public is offered the entire quantity of bonds that the issuer plans to sell through a single offering (i.e., the full sum of the loan the issuer wishes to receive).
If the investor wishes to receive $20 million, then they will offer a series of 20,000 bonds (i.e., with a face value of $1,000 each).
The Bond Price on the Issue Date (Firsthand Sale)
The bond price reflects the face value (or par value) of the bond, or the sum that the bondholder will be paid on the maturity date. In all government issues, and in some private issues, a tender determines the price. The sale is made to the highest bidder, however there various types of tender, but these will not be explained here.
In all other private issues, the issuer determines the price in advance, and a tender is held to determine the coupon rate. Investors who are willing to accept a lower interest rate will win the tender. It therefore follows that every firsthand sale is offered by tender. Most tenders involve the coupon rate, while others concern the bond price.