There are many different kinds of investments out there. You could invest your money into stocks and bonds or you could invest it into a friend's business. When you invest money, you are lending your money to someone else in hopes of earning a profit. You could be earning interest, being paid part of the profits of a business, or get capital gains through trading.
When you think of investments, you probably think of bonds because they are one of the most common. Governments and corporations issue bonds to raise money for growth and the running of the business. A bond is basically a loan from you to them.
Corporations and the government frequently issue bonds usually in $1,000 denominations. Savings bonds are issued in other denominations such as $50, $100, etc. You are probably most familiar with savings bonds because you might have received them for birthdays and gifts for other occasions.
There are a few different ways to earn money from a bond investment. The most obvious is through interest. If you buy a $1,000 bond with a 3% interest rate, you will be paid $30 a year. You will get your payment annually, semiannually, or sometimes they pay it all at once at the end when the initial loan is repaid.
You can also buy a bond at a premium or discount. A premium would be paying more than the face value and a discount would be paying less. You could buy a $1,000 bond for $900 and when you are repaid the principle you would get $1,000 which would be a $50 profit. This is another way you can earn from a bond in addition to the interest rate you choose.
Bonds can also be traded for profit. If you buy a bond that doesn't mature for 10 years, you could sell them after 5 years. If you buy a $1,000 bond for $960 you can sell it after a year collecting interest for $1,000 and make a $40 profit in addition to what you made in interest those two years.
Here is a bond example. Let's say a corporation is selling $1,000 bonds and you want to buy 5. They are selling for $980 each at an interest rate of 5%, and they mature in 5 years. You buy 5 bonds and pay $4,900 with a $5,000 face value. Each year you make $250 and in year five you make $250 plus you are repaid $5,000. You make a total of $1,350 which includes $1,250 for five years of interest plus $100 from the discount rate you bought it at.
You could have sold any amount of these bonds before maturity if anyone was willing to pay for them. Bonds are better off for those closer to retirement. Unless you are planning to invest in junk bonds and do a lot of trading, you will not make as much as you would in the stock market. - 15224
When you think of investments, you probably think of bonds because they are one of the most common. Governments and corporations issue bonds to raise money for growth and the running of the business. A bond is basically a loan from you to them.
Corporations and the government frequently issue bonds usually in $1,000 denominations. Savings bonds are issued in other denominations such as $50, $100, etc. You are probably most familiar with savings bonds because you might have received them for birthdays and gifts for other occasions.
There are a few different ways to earn money from a bond investment. The most obvious is through interest. If you buy a $1,000 bond with a 3% interest rate, you will be paid $30 a year. You will get your payment annually, semiannually, or sometimes they pay it all at once at the end when the initial loan is repaid.
You can also buy a bond at a premium or discount. A premium would be paying more than the face value and a discount would be paying less. You could buy a $1,000 bond for $900 and when you are repaid the principle you would get $1,000 which would be a $50 profit. This is another way you can earn from a bond in addition to the interest rate you choose.
Bonds can also be traded for profit. If you buy a bond that doesn't mature for 10 years, you could sell them after 5 years. If you buy a $1,000 bond for $960 you can sell it after a year collecting interest for $1,000 and make a $40 profit in addition to what you made in interest those two years.
Here is a bond example. Let's say a corporation is selling $1,000 bonds and you want to buy 5. They are selling for $980 each at an interest rate of 5%, and they mature in 5 years. You buy 5 bonds and pay $4,900 with a $5,000 face value. Each year you make $250 and in year five you make $250 plus you are repaid $5,000. You make a total of $1,350 which includes $1,250 for five years of interest plus $100 from the discount rate you bought it at.
You could have sold any amount of these bonds before maturity if anyone was willing to pay for them. Bonds are better off for those closer to retirement. Unless you are planning to invest in junk bonds and do a lot of trading, you will not make as much as you would in the stock market. - 15224
About the Author:
How do bonds work? Bonds aren't as complicated as you think. Don't allow them get you confused. Learn more about stocks and bonds, and if you want to invest in real estate.
