What are bonds and are they a safe investment?
Unlike a share of stock, a bond is an instrument that represents a debt obligation by the issuing entity to the bearer of the bond. Bonds are much like making loans to a corporation or government so they can fund projects. At maturity of the bond (a variable length of time, depending on the bond) the face value is redeemed and the bond will no longer pay semi-annual interest. They are rated on the respective entity’s ability to make payments and satisfy its face value payment on the maturity date. The lower the rating, the more risk involved with the issue thus requiring higher coupon (interest) rates. Government bonds include those issued by the Federal Government and on the municipal level. Municipal bonds are unique in that they offer investors the potential for tax exempt income.
Related Questions
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