Summarize the concept of investing in bonds. include a definition of what kind of investment a bond is, how bonds are bought and sold, how bond prices are affected by interest rate fluctuations, and what type of investors are best suited for investing in bonds, and what expectations they should have. Be sure to include a brief analysis of the potential risks and rewards of investing in bonds.
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Bonds are financial instruments that organizations such as corporations, governments or governmental agencies use to raise money (Antle & Garstka, 2004). Bonds have a higher level of security than stocks and they are less risky than stock. The bondholders are called creditors because they lend money to the organizations that issues the bonds. The returns on a bond are usually lower than stock, but they are a safer investment. Organizations issue bonds in order to borrow money for large capital projects such as expansions and acquisitions or for the day to day operations (www.about.com). There are three terms that are used in discussing bonds and they are par value (the amount of money the investor will receive after the bond matures), coupon rate (the amount of interest the bondholder will receive) and the maturity date (the date when the bond issuer has to return the principal to the lender). The change to interest rates is the biggest ...
The expert examines personal finance for investing bonds.