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What are bonds

Updated on January 31, 2011

Suppose that the state must pay a
debt and not have the money to do so.
Well what do then is to ask
borrowed money to which issues a security
publicly called for the amount of bonus
money needed and backs it up with some
asset owned by such reservations
For such a bond is appealing the State
agrees to pay to those who pay
money for such bonds or income
interest. So those who pay the money the
State needs, will be rewarded
getting an annual return to
maturity of the bond when it recovers
all the money originally invested.
Each payment made to the State
holders of such bonds by way of
interest income and referred to each return
a percentage of the money originally
lent is called amortization. So we
will find different types of bonds.
There are bonds a year to two and up to 30
year term. Some pay income all
months and others only once a year.
Some are amortizing their value as
Monthly and others do in a single payment

When a new bond is issued is
specifies the conditions under which
return the money and pay interest
and this is true until the last day of
life of the bond, ie its total rescue.
To make it clear operation
a bonus we show a practical example.
Suppose that the state issues to 1,000,000
bonds as it needs one million pesos. For
Thus each bond will cost a dollar. To entice
offered investors a yield of 12
% Per annum payable monthly. The
bond's duration is 10 years. Well,
decide to invest in such bonds shall
paid one peso for each bond and then
slowly pick up the money along with
interest on the loan. So who
Buy thousand bonds charged 1% over a thousand
bonds each month and also recovered at the end
each year 10% of the investment, which
after 10 years there will be charged 10 installments
recovering 10% to 100% of your investment
also original to win a 12% interest
year. This, to be charged on a monthly basis
gives us the freedom to reinvest enhancing
our gain.
It is important to note two aspects
fundamental. Firstly not all
bonds have the same conditions or the
same support and they are intimately
linked to the national economy.

Secondly, the bonds traded on
stock market gives us the freedom to purchase and
sell when they want so it is not
we are bound to keep our
able to maturity. This is a great
advantage as to any need
return on investments, we can sell
Bonus mentioned and again from us
money. This point is fundamental to the
more comprehensive security and confidence to investors
since it is he who has all the power of
decision and not subject to any factor
outside your own discretion.

For more information about this topic, review the following hubs:

What is stock exchange and market?

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