Notes On Bonds And Bonds

1770 Words Oct 28th, 2015 8 Pages
Chapter One
Bond Basics
What are bonds?

Bonds are investment tools in form of a debt. When the government, corporate bodies, or municipalities want to borrow from the public, they issue bonds. By investing in bonds, you are simply lending your money to the issuer of the bond (government or a corporation) at an interest for a given period of time. Usually bonds have a face value, which is the money being borrowed, the coupon rate which is the interest rate to be paid to the investors and the maturity date, which is the date you get paid the money you invested. Bonds are issued for varying period of time, may be three months, one year or even five years.

When an organization issues a bond, it makes a commitment to you (investor) that it will make regular (quarterly, biannually, or yearly) payment of the interest at a specified rate on the total amount it borrowed from you (face amount) until the maturity date of the bond when it will repay the principal. This simply means that when you invest in bonds you start earning interest regularly until the maturity date of the bond when the issuer of the bond pays back the principle (money borrowed). Because of the facts that you get paid interest regularly and the principle upon the maturity of the bond, this investment instrument is often termed as a fixed income security.

Bonds alongside other investment vehicles such as term deposits and cash are often classified together as income assets because they provide a reliable and…

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