sábado, 10 de noviembre de 2012

Bonds 101

If a share of stock represents ownership in a company and its profits, a bond is basically a temporary loan that you make to a company, the US Treasury, or a local government entity. Bonds are created when an organization (called the issuer) decides that it wants to borrow a certain sum of money from investors. As with any other loan, the issuer promises to pay the money back after a fixed period of time (a term) and agrees to pay the investors a fixed interest rate as well. 
This rate of interest, expressed as an annual percentage, is called the coupon rate. The total amount of debt that the issuer is taking on is then divided up into smaller chunks, each representing a fixed dollar amount of the money being borrowed (the face value) and sold to investors. These are the bonds. 
At the end of the term, a bond matures and the issuer repays the original money borrowed. However, because you can buy or sell bonds like shares of stock, the person holding the bond at maturity may not be the original buyer. In the meantime, the issuer keeps making interest payments to the current bond owners.

No hay comentarios: