Some Enlightened Accountant Please Explain What Fixed-Income Debt Instrument Is

Difference ya BOND Na LOAN

A bond you get back your principle at maturity. And you only earn interest during that period. A loans principle is paid back during term.

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A bond is a fixed income debt instrument. A loan is just a credit facility.

Differences:

The main difference between a loan and a bond is how they are repaid. A loan is generally repaid in equal instalments for the entire term (fixed rate loans). For floating rate loans, the amounts may vary slightly depending on the interest rates but the general idea is the same. Each instalment is a combination of the principal and interest (usually monthly). Meanwhile, the bond holder only gets paid the interest (usually annually or semi-annually). The principal is returned to the bond holder when the bond matures.

Loans are issued by banks and financial institutions. Usually they need some form of collateral. Bond money comes from investors who may or may not be financial institutions. Bonds do not require collateral.

Remember that only licensed deposit-taking institutions can profit off loans because they lend out their deposits. Bonds are considered fixed-income instruments because you don’t need to be a financial institution to lend your money to a company or country when you buy their bond.

I’m not a practicing accountant but that’s my basic understanding from CPA and some Money and Banking units studied in campo.

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