Bearer Bond

A bearer bond or a coupon bond is a bond or debt security that is unregistered. This means there are no records of the owner or the transactions related to ownership and the person holding the bond is regarded as its owner. It is a type of bond which has coupons attached to it which allows the holder to receive interest payments from the individual/ entity which has borrowed the bond. It is the responsibility of the holder of the bond to submit the coupons to the bank for payment and redeem the bond certificate when the bond reaches the date of its maturity.

The Tax Equity and Fiscal Responsibility Act of 1982 banned the bearer bonds in the United States. Many other countries have banned the practice of issuing bearer bonds as these can be used for evading tax or money laundering.

For example, XYZ Company issues a $1,000 bearer bond. The coupon rate on the bearer bond is 6%, which means the issuer of the bond will be required to pay you 6% interest per year, or $60, on the face value of the bond ($1,000 x 0.06). Irrespective of whether your bond trades for more than $1,000 (or less than $1,000), the issuer of the bond is still responsible for paying $50 per year to the purchaser/ holder of the bond.

 

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