 |
Bonds
A bond is a loan and you are the lender. Who's the borrower? Usually, it's either the U.S. government, a state, a local municipality or a big company like General Motors. All of these entities need money to operate. The money can be used to fund the federal deficit or to build roads. They borrow capital from the public by issuing bonds. When a bond is issued, the price you pay is known as its face value. Once you buy it, the issuer promises to pay you back on aparticular day. This is known as the maturity date. The predetermined rate of interest is known as the coupon. For example, if you buy a bond with a $2,000 face value, a 5% coupon and a 10-year maturity. You would collect interest payments totaling $100 in each of those 10 years. When the ten years was up, you'd get back your $2,000 and walk away. Who's the borrower? Usually, it's either the U.S. government, a state, a local municipality or a big company like General Motors. All of these entities need money to operate. The money can be used to fund the federal deficit or to build roads. They borrow capital from the public by issuing bonds. When a bond is issued, the price you pay is known as its face value. Once you buy it, the issuer promises to pay you back on a particular day. This is known as the maturity date. The predetermined rate of interest is known as the coupon. For example, if you buy a bond with a $2,000 face value, a 5% coupon and a 10-year maturity. You would collect interest payments totaling $100 in each of those 10 years. When the ten years was up, you'd get back your $2,000 and walk away. There are several different types: 1.) Municipal: These are issued by Government Agencies to raise money for financing public projects. 2.) U.S. Treasury Securities: The U.S. Government issues these as debt instruments. They are considered very safe and usually offer lower interest rates. 3.) Zero Coupon: These are sold at a discounted value. When it matures, the investor receives the full face value. 4.) Corporate: Public and private corporations issue these. They are generally offered at the $1,000 or $5,000 levels. 5.) Mortgage Securities: Financial institutions offer these in the form of ownership in mortgage loans. 6.) High-Yield: These are isusued by organizatons who do not qualify for investment grade ratings by one of the leading credit agencies. A higher interest rate is usually offered to attreact more investors.
Currently, there is an opportunity to receive the equivelant of 7%. This occasion arises rarely, but it now presents itself. I have isolated a cash investors dream.
Bond Recommendations
Return to Home Page Disclaimer: I am not a Registered Investment Advisor. All information on this website is my opinion and is put here for entertainment for my readers. I do not recemmend making financial decisions based upon my opinions. I will always give full disclosure if I own any stock that I am recommending. All information on this website is obtained freely from the Internet, Radio and Television. Any income generated from this website is created from the clearly displayed advertising on each page. |