In the history of financial trading, bonds are the toughest of all instruments while the global economic recession, which has not spared any country in its bid to take peoples personal finances to the desert lasted, bonds have been as solid as stone. With bonds, one is sure of earning as much as 10% to 20% yearly interest investing in bonds and still has his money back in full at the end of the bonds maturity period.
A lot of people know little or nothing about bonds and how it works. This is the secret that Warren Buffet, the richest investor in the world has been using to secure wealth in trouble times.
Though bonds are not as profitable as stocks in terms of capital appreciation, but it has a guaranteed return in the medium and long term, especially for those who are afraid of losing their heart taking risk in the stock market.
Bond is a certificate of indebtedness issued by a borrower to a subscriber. Bond issuing is a situation whereby government at any level as well as corporate bodies creates an opportunity to borrow money from the investing public by issuing papers promising the buyers or subscribers of such paper or bond some certain percentage of the cost representation of the bond within specified agreed period between parties involve. In bond, return is fixed.
Bonds can be issued through the primary markets which make it an offer to the general public-anybody in the street can get it. And it can also be traded in the secondary markets through firms authorized to do so, or through brokers.
CHARACTERISTICS OF BONDS
Bonds have a number of characteristics of which any subscriber need to be aware of. All of these characteristics play a role in determining the value of a bond and the extent to which it fits your portfolio.
The characteristics are:
1. Face Value/Par Value:
This is the amount of money a holder of bond will get back once a bond matures, given the giver doesn’t default.
2. Coupon (Interest Rate)
This is the amount a bond holder will receive as interest payments. Most bonds pay interest every six months, monthly, quarterly or annually.
3. Maturity
This is the date in which the future on which the investor’s principal will be repaid. It ranges from 1 year to 30 years.
4. Issuer
The issuer of a bond is a crucial factor to consider as the issuer’s stability is the main assurance of getting paid back. Government bonds are far more secured than any corporation or organization.
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