1.1.12.4 Redemption on Fixed Income Securities

Fixed income securities/bonds have a pre-defined life of 7 – 10 years. Conceptually, the company is indebted to all its borrowers who have funded the bonds. The companies would normally redeem their debts and thus there is a fixed maturity period for all the fixed income securities. The customers are usually paid back the face value of the bond or the face value and a small premium on the bond at the time of maturity.

For example, if the face value of the bond is $100, the company would repay $100 or $105 (Face value + premium of 5%) at the time of redemption.