Investment Basics
Bonds
When a governmental body or agency or a corporation wants to raise money, one way they can do it is to float a bond issue. When you buy a bond, you are essentially loaning money to the issuer. You expect to earn interest and to be repaid your principle on the maturation date (the date when the bond must be repaid).
Bonds are not without risk. Bond prices go down when interest rates go up. If you have to sell your bond before maturity and interest rates have gone up, the bond will be worth less than its face value. You'll lose money with the sale.
In addition, you face the risk that the borrower may default on repayment of your capital. To help bond investors determine this kind of risk, both Standard & Poors and Moody's have developed ratings for bonds. S & P rates bonds AAA to D, with AAA being the safest. Moody's ratings range from Aaa to C, with Aaa being the safest. To protect your investment, you should buy only AAA, AA or Aaa rated bonds. |
