PURCHASE BOND: TYPES OF BONDS

2007-05-02 10:04:19

( Financial )



A bond is a note of indebtedness distributed by the federal government and corporations to generate funds for its business activities. It earns interest at a designated time as stated in the bond certificated issued by these entities. It is a fixed income security since the amount of money it earns every year pre-set when the public purchase bond. Whatever happens, whether the issuer earns money or not will not matter since the one who purchase bond will get the income indicated in the bond certificate.

There are four general types of bonds sold in the market today. Government bonds, government agencies issued bonds, municipal unit bonds and corporate bonds are the general types of bonds circulated in the market today.

Government Bonds

The Federal Government of the United States to generate funds for public spending issues government bonds. The Treasury Department issues government bonds called treasuries or treasury bonds. It has various maturity options to choose from depending on the length of time it takes for the government to pay such debts. Maturities of government bonds are either short term or long term. It can have maturity of three months to thirty years.

Government Agency Issued Bonds

The Federal Government back up some government agencies to sell bonds for specific purposes related to the national mandate of their organizations. It also approved quasi-government agencies to issue bonds to generate funds for its operations. Thus, investors can set purchase contact with these agencies when they want to buy bonds from them.

Municipal Unit Bonds

Municipal bonds are bonds issued by the State and Local government units to generate funds for maintenance of its offices and support its community development operations. It offers tax benefits to these bonds such as federal income tax as well as local tax.

Corporate Bonds

Corporations generating funds to expand its operations issue corporate bonds usually at higher interest rate to make it more attractive for investors who are willing to purchase bond. Unlike government bonds, corporate bonds have higher risk since corporations are at risk of going bankrupt and might not be able to fulfill its obligations to pay off the value of purchase bond.

Bonds are another form of investments to put your money into. You are generating income from it while you are also helping corporations or the government funds their operations.


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