What is a Bond Indenture? - Definition & Types

Instructor: Michael Cozad

Michael is a financial planner and has a master's degree in financial services.

In this lesson, you'll receive an introduction to bond indenture as used in business. You'll also have the chance to look at the terms of a bond indenture for a hypothetical business owner looking to expand his chain of stores.

What is a Bond Indenture?

Bob's Market in Sunnyside, OH, has two stores and its number of customers is growing daily. Bob, the owner, would like to open a third store, but does not have the cash available - it's all tied up in his existing stores! Bob talks to his financial advisers, who suggest he contact some interested individuals about loaning him money.

After speaking with his advisers, Bob decides to move forward and approach some potential investors about funding his new market. Rather than negotiating a lot of individual loans, Bob will issue bonds, which requires the creation of a bond indenture, or contract, between Bob's Market, (the bond issuer) and the bond purchasers. In business, a bond indenture can also be referred to as a deed of trust.

Types of Bonds

There are several different types of bonds, including corporate, government, municipal and zero-coupon bonds. For the purposes of this lesson, we'll look at callable and convertible bonds. If Bob's Market issues callable bonds, it may 'call' the bonds early and return the bondholders their money prior to the maturity date. By comparison, convertible bonds allow bondholders to convert their bonds to stock.

Bond Terms

Contractual details help investors decide whether or not they will buy a bond. Some of the information contained in Bob's Market's bond indentures includes:

  • Par Value: $1000.00 per bond
  • Maturity Date: 05/01/2020
  • Interest Payments: 5% annually but paid 2.5% semi-annually based on par value; bondholders will receive $25 every six months per one bond
  • Callable: No
  • Convertible: No
  • Additionally: All terms and applicable conditions are inserted in this space.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account