You need to understand certain things about bonds before you invest in them. Without understanding them, it's possible for you to purchase the wrong bonds at the wrong maturity date.
The par value, maturity date, and coupon rate are the 3 most important things to consider when purchasing a bond.
The bond's par value is the amount of money you'll be receiving when the bond reaches its maturity date. This means that your investment is what you'll get when the bond reaches maturity.
The maturity date is of course the date that the bond will reach its full value. On this date, you will receive your initial investment, plus the interest that your money has earned.
Before they reach their maturity, Corporate, State, and Government bonds can be called and the corporation or issuing Government will have your initial investment returned to you along with the interest it has so far earned. Federal bonds cannot be 'called.'
The coupon rate is the interest that you will receive when the bond reaches maturity. This number is written as a percentage, and you must use other information to find out what the interest will be. A bond would earn $100 a year until it reaches maturity if it's par value is $2000 and the coupon rate is 5%.
Banks don't issue bonds so many people don't understand ho to go about buying one. There are two ways you can do this.
The purchase can be made for you by a broker or brokerage firm or go directly to the Government. Using a brokerage means that it's likely for you to be charged with a commission fee. Shop around for the lowest commissions if you want to use a broker.
Purchasing directly through the Government isn't nearly as hard as it once was. There is a program called Treasury Direct which will allow you to purchase bonds and all of your bonds will be held in one account, that you will have easy access to. Doing this will allow you to avoid using a brokerage firm or broker.
The par value, maturity date, and coupon rate are the 3 most important things to consider when purchasing a bond.
The bond's par value is the amount of money you'll be receiving when the bond reaches its maturity date. This means that your investment is what you'll get when the bond reaches maturity.
The maturity date is of course the date that the bond will reach its full value. On this date, you will receive your initial investment, plus the interest that your money has earned.
Before they reach their maturity, Corporate, State, and Government bonds can be called and the corporation or issuing Government will have your initial investment returned to you along with the interest it has so far earned. Federal bonds cannot be 'called.'
The coupon rate is the interest that you will receive when the bond reaches maturity. This number is written as a percentage, and you must use other information to find out what the interest will be. A bond would earn $100 a year until it reaches maturity if it's par value is $2000 and the coupon rate is 5%.
Banks don't issue bonds so many people don't understand ho to go about buying one. There are two ways you can do this.
The purchase can be made for you by a broker or brokerage firm or go directly to the Government. Using a brokerage means that it's likely for you to be charged with a commission fee. Shop around for the lowest commissions if you want to use a broker.
Purchasing directly through the Government isn't nearly as hard as it once was. There is a program called Treasury Direct which will allow you to purchase bonds and all of your bonds will be held in one account, that you will have easy access to. Doing this will allow you to avoid using a brokerage firm or broker.
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