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Newsletter

What Is a Bond?

1/3/2019

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What Is a Bond?When you invest in bonds, you are investing in the debt of a government entity or a corporation. A bond is simply evidence of a debt and represents a long-term IOU.
Bonds are issued by federal, state, and local governments; agencies of the U.S. government; and corporations. By selling debt with a promise to pay it back with interest, the issuing agency can raise capital to finance its operations.
The issuing company or government entity will outline how much money it would like to borrow, for what length of time, and the interest it is willing to pay. Investors who buy bonds are lending their money to the issuer and thus become the issuer’s creditors. Bonds are sold at “par” or “face” value, which is the price at which the bond is issued, usually in denominations of $1,000 or $5,000.
By purchasing a bond, you are lending the debtor money. In exchange, you receive a note stating the amount loaned, the interest rate (the “coupon” or “coupon rate”), how often the interest will be paid, and the term of the loan.
The principal (the amount initially paid for the bond) must be repaid on the stipulated maturity date. Before that date, you (as lender) receive regular interest, usually every six months. The interest payments on a bond are usually fixed.
Before 1983, bondholders would receive coupons that they would clip and mail in semi-annually to receive the interest payments. Presently, all bonds are issued electronically in book-entry form only.
If you are considering buying a bond, remember that the market value of a bond is at risk when interest rates fluctuate. As interest rates rise, the value of existing bonds typically falls because the interest rate on new bonds would be higher. The opposite can also happen as well. Of course, this phenomenon applies only if you decide to sell a bond before it reaches maturity. If you hold a bond to maturity, you will receive the interest payments due plus your original principal, barring default by the issuer. Additional considerations are a bond’s maturity date and credit quality. Investments seeking to achieve higher yields also involve a higher degree of risk.


The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the ­purpose of ­avoiding any ­federal tax penalties. You are encouraged to seek advice from an independent professional ­advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the ­purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2019 Broadridge Investor Communication Solutions, Inc
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Securities offered through OneAmerica Securities, Inc., a Registered Investment Advisor, member FINRA SIPC. Sunshine Financial Solutions of South Florida, Inc. is not an affiliate of OneAmerica Securities or the companies of OneAmerica and is not a broker dealer or Registered Investment Advisor. Provided content is for overview and informational purposes only and is not intended and should not be relied upon as individual tax, legal, fiduciary, or investment advice. Neither OneAmerica Securities, the companies of OneAmerica, or Sunshine Financial Solutions of South Florida, Inc. provide tax or legal advice. For answers to specific questions and before making any decisions, please consult a qualified attorney or tax advisor. Guarantees are subject to the claims paying ability of the issuing insurance company.
  • Home
  • About Us
    • About Us
    • Meet Our Team
    • Mission Statement
    • Our Promise
    • Our Partners
    • Brokerage Services
  • Our Services
    • Individuals and Families
    • Business Owners
    • Retirees/Medicare Eligible
  • Planning
    • Life Insurance
    • College Planning
    • Retirement Planning
    • Build Wealth
    • Disability Insurance
    • Mortgage Protection
    • Business Valuation
    • Long Term Care
    • Final Expense
    • Home + Auto
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    • Group Plans
    • Business
    • Key Employees
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    • Executive Carve Out
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  • Resources
    • Careers >
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