What is a bond indenture?

Disable ads (and more) with a membership for a one time $4.99 payment

Prepare for the UCF FIN3403 Business Finance Exam with our comprehensive study materials, including flashcards and multiple-choice questions. Each question comes with hints and explanations. Start your preparation now!

A bond indenture is the legal contract that outlines the terms and conditions of a bond issuance between the bondholder and the issuing company. It serves as a formal agreement that details the essential features of the bond, such as the interest rate, maturity date, payment schedule, and covenants that both the bond issuer and holders must adhere to.

This document is crucial because it protects the interests of both parties involved in the bond transaction. For the bondholders, it provides assurance of their rights and the obligations of the issuer, thereby contributing to the overall transparency and reliability of the investment. It may also include specifics about what happens in the event of default, which is vital information for investors when assessing the risk of the bond.

Understanding the function of a bond indenture is key for anyone involved in finance, as it lays down the foundational legal framework for bond investments.