5 THINGS YOU NEEDS TO KNOW ABOUT BONDS

What is a Bond?

When government agency or private corporation needs to raise money,it issues a bond.An investment banker determines how much money the agency or corporate needs,the interest to be paid,and when it will be repaid.A bond pays interest over a fixed period.In the bond market,lower interest rate raises bond prices and vice versa.

  TYPES OF BONDS

I.) Treasuries Bonds

II.) Savings Bonds

III.) Municipal Bonds

IV.)Corporate Bonds

V.) High-yield (junk) Bonds

     I.) Treasuries Bonds

By purchasing a state's treasury bond,an investor lends money to the government for a specified period of time in exchange of interest.Treasury bonds are subdivided into groups namely:

•Treasury bills or T-bills ; are issued in thousand-dollar increments and mature within three,six or twelve months.When the bill matures,the principal can be returned or reinvested.

•Treasury notes;they mature in two,five or ten years and require a minimum investment of $1,000 to $5,000.

•Treasury bonds ;mature in ten to thirty years and require a minimum investment of $1,000.Both notes and bonds pay interest semi-annually.

            II.) Savings Bonds

These government bonds are issued in denominations ranging from $50 to $10,000.Sold at a discount rate, they are redeemed at face value of maturity.

           III.) Municipal Bonds

These are issued by state or local governments.An investor pays no income tax on the interest earned.They pay less interest rates than taxable bonds.The interest rate remain steady but price fluctuate due to changes in the market.

          IV.) Corporate Bonds

          

They are issued by companies that need to borrow money.The minimum investment in corporate bond is $1,000.The interest rate may remain steady but the price rise and fall sometimes due to market.Corporate bonds may be riskier than government bonds because businesses can go bankrupt.

           V.) High-yield (junk) Bonds

These bonds are issued by corporations without solid sales and earning records,or with a dubious credit rating.The chance that the investor will not be repaid is higher because of the issuer's instability.The type of junk bond is that it can easily fluctuate than any other type of bond.

Understanding investment in bonds is critical for any investor seeking security in his investments since bonds are highly secure than investing in stocks.