Understand Characteristics of Bonds

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Remember that the government only represents about 30% of our retirement income, the company retirement pension plan offers another 30 % and many of us do not have one. It is up to individuals to invest wisely short and long term in order to make up for the short fall if he or she would like to live comfortably after retirement without giving up some retirement plans.
Bonds are issued by government or corporation through bond underwriters as they agree to purchase all of the bonds offered at a stated price, then sell them at a slightly higher price to other corporation and willing investors. Each bond has a par value that is the face value of the bond and is printed on the bond itself.In this article, we will discuss The characteristics of bonds.

1. Factors affecting bonds.
a) Fluctuation of interest rate and length of time to maturity.
b) The credit rating of the issuer. the lower rating of issuers will have to pay a higher interest rate to attract investors.
c) Longer the term of bonds, the higher the rate needs because of uncertainty about the future.
d) Municipal governments have the lowest credit rating than federal government, therefore they pay the highest interest rates over the federal and provincial governments.
e) Corporations may have to pay a higher interest rate on their bonds than the any level of government.

2. Bond certificates
Every bondholder receives a bond certificate that states the terms of the issue and the denomination of the bond including the maturity date, the interest rate, and how the interest will be paid.

3. Interest payments
Interest on bond may be paid either by check or coupon, usually twice a year. coupons are the same as cash and attached to the bond certificate.

4. Types of bonds
a) Bearer bonds have no proof of ownership, whoever possesses them can sell them or cash in the coupons because because the bond issuer has no way of knowing to whom the interest check should be sent.
b) Unlike bearer bonds, registered bonds have the name of the owner typed on them and carry coupons if detached, can be cashed by anyone.
c) Fully registered bonds, not only have the owner's name appears, but also the interest is paid directly to the owner by check.


I hope this information will help. If you need more information, you can read the complete series of the above subject at my home page:

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