Options
Bonds
What they are
- A bond is an "IOU," certifying
that you loaned money to a government
or corporation and outlining the
terms of repayment.
How they work
- Buyer may purchase bond at a
discount. The bond has a fixed
interest rate for a fixed period
of time. When the time is up, the
bond is said to have "matured" and
the buyer may redeem the bond for
the full face value.
Types
- Corporate bonds are sold by private
companies to raise money. If company
goes bankrupt, bondholders have
first claim to the assets, before
stockholders.
- Municipal bonds are issued by
any non-federal government. Interest
paid comes from taxes or from revenues
from special projects. Earned interest
is exempt from federal income tax.
- Federal government bonds are
the safest investment you can make.
Even if the U.S. government goes
bankrupt, it is obligated to repay
bonds.
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