A borrower is the party that receives money in a debt arrangement and must repay the principal, usually with interest. In a bond, the borrower is the issuer on the receiving side of the IOU. section 5.2
A bond borrower can be assessed through:
- Identity: federal governments, municipalities, and companies can borrow through bonds. section 5.2
- Repayment: the borrower returns principal at maturity and makes scheduled coupon payments when required. section 5.2
- Credit risk: higher default risk generally leads investors to demand higher interest rates and lower ratings. section 5.2
Figure 5.3 A plain vanilla bond
Use the plain-vanilla bond diagram to trace the borrower’s repayment obligation against the lender’s cash flows. section 5.2
