Hi welcome to Professor Savings,
Today’s topic. What is a bond?
Bond is a type of investment. A bond is a security that is an agreement with borrowed money.
what is a bond?
basically it’s an IOU.
An issuer is entity that needs to barrow money. Some example of people that may issue a bond include corporations or government.The principal is the money of money barrowed byt he issuer.
The maturity date is when the bond returns. This period ranges from 6 months to 30 years so check out your terms. The interest rate is how you will make money.
Let’s say Ken here has $10,000 to invest and found a bond that will pay him 5% paid every 6 months. This is a fixed rate.
At the end of the year he will make $500 but there is more to consider. so let’s shop for a bond. Each bond has a credit rating.
High credit rating means a lower interest rate.Low credit rating means a higher interest rate. This makes sense since the higher interest rate is needed to attract buyers.
Pro’s. A bond with a fixed rate, you will know how much you will make but the con is that minus inflation there is not too much profit.
Con is that a corporation or government can go bankrupt.
We are just covering the basics.
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