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What are Bonds?The price of a bond will fluctuate with interest rates. When interest rates go up, prices of currently trading bonds tend to go down, and vice versa. If the bond is held to maturity, the investor will receive an amount stated on the bond known as the face value. For example, if you buy five corporate bonds at $1,000 each and the bonds mature in 20 years, even if the value of the bond changes over the period of time they are held, the bonds will be worth a total of $5,000 at the time of maturity. In addition, the borrower may promise to pay you an interest payment twice a year for 20 years. The declard interest of the bond is called the coupon rate. Bond investors may take advantage of several different marketplaces: Municipal Securities Market. Municipal securities are a primary way that U.S. state and local governments borrow money to finance their capital investment and cash flow needs. States, cities, counties, and other governmental entities use municipal bonds to raise money to build schools, highways, hospitals, and sewer systems, as well as many other projects for the public good. An important distinguishing characteristic of the municipal securities market is the exemption of interest on municipal bonds from federal income taxes. Treasury Securities Market. The U.S. Treasury secutities market is the largest and most liquid financial market in the world. The U.S. Treasury issues three types of securities: bills, which have a maturity of less than 1 year; notes, which have a maturity of 2 to 10 years; and bonds, which have a maturity of greater than 10 years. Federal Agency Securities Market. Federal agency debt is issued by various governmenta-sponsored enterprises created by congress to fund loans to borrowers such as homeowners, farmenrs, and students. Corporate Bond Market. Corporate debt securities are obligations issued by corporations for capital and operating cash flow purposes. Corporate debt is issued by a wide variety of corporations involved in the financial, industrial, and service-related industries. Mortgage Securities Market. Mortgage securities represent an ownership interest in mortgage loans made by financial institutions to finance the borrower's purchase of a home or other real estate. Mortgage securities are created when these loans are packaged, by issuers or servicers for sale to investors. As the underlying mortgage loans are paid off by the homeowners, the investors receive payments of interest and principal. Most individual bonds are bought and sold in the over-the-counter market, although some corporate bonds re also listed on the New York Stock Exchange. To purchase a new bond issue, a financial professional will provide the bond's offering statement- the prospectus. It will spell out a bond's key terms and features, as well at the risks involved. Investors can also buy and sell bonds that have already been issued. This is known as the secondary market. Many dealers keep inventories of a variety of outstanding bonds. Bonds sold in the over-the-counter market are usually sold in $5,000 denominations. In the secondary market for outstanding bonds, prices are quoted as if the bond were traded in $100 increments. Thus, a bond quoted a 98 refrs to bond that is priced at $98 per $100 of face value, or at a 2 percent discount. You can learn more about investing in bonds at
http;//www.investinginbonds.com
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