Bonds
Bonds are securities issued by a company or a government that entitle the bondholder to receive face value (principal) at maturity date and fixed interest payments. Year income is calculated by multiplying face value by interest rate. Coupon is calculated by year income by payment frequency.
Zero coupon bonds pay no coupon. At the maturity date investors receives only face value, but they are sold at discount.
What you should know about bonds.
The investor is often faced with the choice: what instrument to be bought. The most common instruments to invest are saving accounts, bonds and stocks (shares). Each have pros and cons.
Saving accounts are often less profitable than bonds. Furthermore, interest income on savings accounts is taxable.
Bonds offer a reliable cash flow that allows planning new investment better and in advance.
Stocks are more profitable, but they are more risky instrument to begin with. Besides, a company pays primarily bondholders, and then stockholders (if money lefts over). Fixed income is more likely than dividends to be received.
Bonds are conservative securities.
