There are certain things you must understand about bonds before you start investing in them. Not understand these things can cause you to purchase the wrong bonds, at the wrong end.
The three main things to be considered when purchasing a bond below the nominal value, maturity and coupon rate.
The nominal value of a bond refers to the amount of money you get when the bond reaches maturity. In other words, you receive back your initial investment when the bond reaches maturity.
The expiry date is of course the date that the bond will reach its full value. On this date you receive your initial investment plus the interest your money has earned.
Corporate and State and local government bonds can be 'called' before their maturity, at which time the corporation or the government will issue your initial investment, return, along with the importance they have earned to date. Federal bonds can not be 'called. "
The coupon rate is the interest that you receive when the bond reaches maturity. This song was written as a percentage, and you have to use other information to find out what the interest rate will be. A bond with a face value of $ 2000 has, with a coupon of 5% would earn $ 100 per year until maturity.
Because bonds are not issued by banks, many people do not understand how to go about purchasing one. There are two ways this can be done.
You can use a broker or brokerage firm to purchase for you or you can jump to the government. If you have a brokerage, you will more than likely be charged a commission. If you want to use a broker, shop around for the lowest commissions!
Purchase directly by the government is not nearly as hard as it once was. A program called Treasury Direct which will allow you to bonds, your bonds will be held in an account, you have easy access with be abolished. This will allow you to avoid using a broker or brokerage firm.
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