Investopedia Video: Introduction To Bonds

Find out how this method of debt investment is used to finance various levels of government and private companies.

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Category:

Education

Tags:

• bond
• fixed-income security
• debt
• coupon
• interest
• maturity
• yield
• yield to maturity
• Treasuries
• zero-coupon bond
• muni
• corporate bond
• bond rating
• junk bond
• maturity date
• face value
• par value
• premium
• discount
• issuer

[iNinjaNotes]

@Pikapal1 Not 100%. If you buy a CD that is offers 10% you will make $10 on your $100 investment by the end of the year. If you purchase a 10% semi annual coupon bond, you will receive $5 mid year and $5 at the end. Receiving your interest earlier has a greater value associated with it. It's just like would you rather take $1,000,000 today or a year from today? The difference is pretty immaterial, but still should be noted.

[iNinjaNotes]

@Pikapal1 You earn the coupon regularly, you are correct about that. The reason you may resell a bond is just like why you might sell a stock, because it's value has peaked. Bonds fluctuate in price just like stocks when new bonds are released. If they offer better bonds after you purchase yours, your bond is worth less. But if they issue worse bonds, you might want to sell yours now at a premium. Hopefully that makes sense.

[Pikapal1]

Clarifying- you earn interest/coupon EVERY year until maturity... Why resell a bond then? Does the coupon ever go down? Or is it people just aren't patient enough?

[Pikapal1]

So a bond is pretty much like a CD...? e.g. A 1.10 CD is the same as a bond with a 10% coupon? And why would people sell bonds, does the coupon ever rise?

[terry198532]

thanks so much!!!

[globalfinanceschool]

Epic! Thanks for sharing!

[MrVikz]

Awsome

[DJFU999]

So does your bond's face value change as the price fluctuates? Or is it locked in when you buy it?

[xaxxox]

thanks a ton :D

[conjesture]

@Gunzlobo Well, it might help you understand this by flipping your sentence: there is a higher interest rate whenever there is higher risk. Think about that for a few seconds, and let me know whether you get it now or not.