Bonds and Bond Investing 101

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So you are interested to know more about bonds and bond Investing. Before you start to throw your money at the different bonds in the market, it is important that you have a good idea what a bond is.

When you buy a bond, you are actually lending money to the organization or company. You can think it as a form of an IOU. Most government agencies and companies raise their capital through bond issues. Bonds provide the assurance that you will be receiving regular payout from these agencies and companies without cay controlling interest in them.

All bonds are issued with a specific face amount known as the principal or par value. This is usually in the amounts of $ 1,000. Like any loans, bonds pay out interest. Most of the time, the interest rate is fixed and is usually given out two times in a year. For example a $ 1,000 bond at 5% interest would pay an investor $ 50 per year as interest. With 2 payments, the investor will receive $ 25 each time.

Bonds also come with a certain lifespan and that can be 10, 15 or 20 years. Upon reaching its maturity, bond holders will receive all their money back. So if you happen to invest $ 1000 in a 10 year bond that pays 5% interest, you are going to get a total of $ 500 over 10 years and your $ 1000 back at the end of the term.

If you are keen to buy bonds, you can either buy them direct from agencies and companies which sell them or through the brokerage homes and banks that issue them. Most of the time, agencies and companies do not default on their loans so you will be getting all your money back with interest. However, there are also riskier bonds known as junk bonds which offer higher interest rates.

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