The Pros And Cons Of Bonds

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Bonds are income investments used to raise capital – whereby investors loan out their finances usually to Municipalities, Corporations or Governmental (Siegal & Yacht, 2009) entities who borrow the required funds for a specific period of time agreed upon by both parties (bond issuer and bond holder) at a regular or fixed interest rate (Investopedia, 2018). The bond issuer is the person or company selling or borrowing bonds while the bond holder is the person or investor buying or lending bonds (in other words, the bond holder acts as a bank loaning his money to the bond issuer). Bonds have several features but the main ones are:

- Bonds carry interest which is also called Coupons that are paid to the bond holder (for using his money)
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But when it makes losses, you lose out as well.

- As a new shareholder, you have the right to voice out your opinions and contribute whatever ideas you may have, make decisions that might benefit the company or those in relation to how it is run.

How stocks are traded

Stocks are traded on stock exchanges after a company completes an Initial Public Offering (IPO) because its shares now become public and are ready to be traded (Hayes, 2018). This is a very straightforward way of investing unlike bonds that can be time consuming and mostly involve a lot of documentation. Every country has stock exchanges (physical or electronic) where investors go whenever they want to buy or sell stocks.

How to Calculate an Annual Rate of Return

Annual Rate of Return – this is the interest rate that is earned on an investment for the whole year (Investopedia, 2018). It is calculated by first adding any income earned to the total obtained after subtracting the end of year amount earned with the beginning of the year amount. After this, divide the total amount obtained by the original amount invested at the beginning of the year. This can further be illustrated as
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