What is a Bond?
When the government or cooperation wants to raise money they issue a bond. A bond represents debt to a company and a source of fixed income to an investor. Bonds are used by the government or a company to fund projects and operations. Bonds give you no ownership rights from the insurer’s company unlike stocks. Bonds give you a stream of income and can offset some volatility from stocks.
Advantages
- Profit if you sell at a higher prices.
- Get all the principal back when making withdrawal at maturity.
- Income through interest gain.
Categories of Bonds
Disadvantages
- Companies can default on the bonds
- Bonds pays lower than stocks
- Bonds yield can fall
Corperate Bonds
Companies issues bonds instead of seeking a loan from the bank.
Varieties of Bonds
Municipal Bonds
Some offers tax free coupons to their investors.
Government Bonds
Issued by the Federal Government.
Agency Bonds
Government affiliated organizations that offers bonds to investors.
Zero-Coupon Bonds
A debt security instrument that does not pay interest.
Convertible Bonds
Allows the bondholders to convert their debt to stocks
Callable Bonds
The company can call back the bonds when it reaches it maturity.
Puttable Bonds
Allows the bondholders to sell the bond back to the company before it's maturity.
A bond is sold by the governments and corporations and is a type of security. It’s a way for them to raise money from investors. The investor gets a guaranteed repayment of the principal and a flow of interest payments. There are categories of bonds such government bonds, cooperate bonds, municipal bonds, and agency bonds. Some varieties of these bonds include zero-coupon bonds, callable bonds, puttable bonds and convertible bonds.
Source: Mackenzie Investments, Investopedia, Fidelity
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