THE BEECHMONT CREST ONLINE GUIDE TO STOCKS AND INVESTING
BOND FUNDAMENTALS
Perhaps stocks are a bit too risky for your tastes. How would you like an investment which protects your principal, while providing a steady stream of income? Welcome to the world of bonds.
When you purchase a bond, you are buying a portion of the debt of a corporation or a government agency. Another way to look at it: you are buying a loan, or an IOU from a corporation or government agency.
If you hold a bond until maturity, then you are guaranteed to receive a specific sum of money. Just as loan must be paid back at a certain time, a bond is redeemable on a particular date. The amount that an investor receives when the bond matures is the par, or face value of the bond. Bonds are most commonly issued with pars of $1000, although other amounts are possible.
A bond-- just like a loan--- includes interest payments. The interest rate paid on a bond is called the coupon rate. This rate is fixed. The corporation or government agency that issued the bond must make interest payments at this rate for the life of the bond.
Bonds are issued against long-term debt. The maximum life of a bond is 40 years. There are also shorter-term bonds called notes which mature in 1 to ten years.