Investing in Bonds

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16 Terms

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Bond Definition

Loan

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What happens?

A company issues bonds when it needs to borrow money for a project. People buy the bond, and the company pays it back to them over time with interest.

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Issuer

Company

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Investor

You

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Why are bonds reliable?

The company must pay back their loans.

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Face value

The initial amount of the loan.

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Coupon rate

The annual interest rate.

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Maturity date

The date at which the face value is returned and the bond gets closed.

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Will stocks or bonds make more over time?

Stocks, because of compound interest.

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 Corporate Bonds

A bond issued by a company. (Not the government).

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Municipal bond

Issued by state/local govts.

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Agency bonds

A bond still issued by the federal government, just not the treasury.

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US Treasury Bonds

Issued by the U.S. treasury.

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Bond rating

How reliable a company is. AAA is the best, the letters go down from there, meaning the rating also goes down.

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Investment grade bonds

AAA to BBB-

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High yield/junk bonds

BB+ to D