ASSUMED BOND Meaning and
Definition
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An "assumed bond" refers to a financial instrument or security that is taken over or acquired by an entity or an individual from another party. In this context, assumption refers to the transfer of responsibility and obligation for the bond from one party to another. When an assumed bond occurs, the acquiring party assumes the role of the original bondholder, thereby inheriting all the rights, benefits, risks, and liabilities associated with the bond.
Typically, assumed bonds are related to municipal bonds, where a new investor or entity takes over the ownership and obligations of the bond from the original bondholder. This transfer usually takes place through a process called a bond assumption agreement, which entails a legal contract between the original bondholder, the acquiring party, and the issuer of the bond. The agreement outlines the terms and conditions of the bond assumption, including any potential changes to interest rates, maturity dates, and other relevant terms.
Assumed bonds are often acquired by individuals or entities seeking investment opportunities that align with their specific financial goals, risk tolerance, and portfolio diversification strategies. By assuming a bond, the acquiring party gains exposure to the associated cash flows, such as interest and principal payments, which can provide a steady income stream. However, it is important to note that assuming a bond also means assuming the risk of default or credit rating deterioration, which may result in losses for the acquiring party.
Overall, assumed bonds play a significant role in the investment landscape, facilitating the transfer of ownership and responsibility for bonds while allowing investors to realign their portfolios and financial objectives.
Etymology of ASSUMED BOND
The term "assumed bond" does not have a distinct etymology because it is a combination of two separate words with their own origins.
1. "Assumed" - This word is derived from the Latin verb "assumere", which means "to take up" or "to take upon oneself". It combines the prefix "ad-" meaning "to" or "toward" and "sumere" meaning "to take".
2. "Bond" - This word has its origins in Old English, where it was spelled as "bonda". It referred to a householder or a peasant farmer who was bound to the land. Over time, the term came to represent any type of binding or obligation. The Old English word "bonda" is believed to have Germanic roots.
