HomeHome SearchSearch MenuMenu Our productsOur products

Your essential guide to understanding bonds

by , 04 February 2015

When you start delving into the world of bonds, one of the first things you may notice is that bonds come with their own ‘language'.

To gain a basic understanding of how bonds work, you need to get to grips with these terms.

So what do you need to know about bonds?

Read on to find out…

The fixed-income world of bonds

Around the world, governments and corporations issue bonds as a way to raise cash. Bonds are a way for governments and companies to raise cash without getting finance elsewhere.

This means when you buy a bond, you’re lending money to the issuer of the bond. And for lending this money, you’ll receive interest payments for the term of the bond. Once the bond matures, you’ll receive the initial amount of the bond back.

To really understand how bonds work, you need familiarise yourself with the terms used…

The basic terminology surrounding bonds

The coupon is the interest rate you receive when you buy bonds. Usually you’ll receive this twice a year and it’s fixed for the life of the bond.

This means when you buy bonds, you know exactly how much interest you’re going to receive.

The coupon is also known as the interest income or the nominal yield.

A bond’s maturity is the number of years before a bond expires. For example, retail savings bonds come with maturities ranging from two to five years.

The vast majority of bonds comes with a single maturity date. There are called term bonds.

Principal value
The principal value is the value of the loan on the date it was issued. This is also called the bond’s par value.

If you bought a bond on the day it was issued, this is the amount you’d pay for it. The value of bonds change through their life, so after the day of issue, the price is known as the current market price of the bond.

So there you have it, your essential guide to understanding bonds.


Why you couldn't choose a better time to start investing in smaller companies

In the last year, the stock market has been in turmoil. There have never been as many bargains on the JSE as there are today...

And it’s only a matter of time before they play catch up. When it happens, the run will be fast and furious and this is great news for you.

It means there are great opportunities for you to get in on these “blue chips of the future” while they’re at rock bottom prices.

And today there are five shares in particular that I can't wait to tell you about. They all have absolutely ENORMOUS growth potential and firmly established foundations, yet still haven't been jumped upon by the rampaging herd.

Click here to find out all about these five shares set to rocket in 2015!


Your essential guide to understanding bonds
Rate this article    
Note: 5 of 1 vote

Related articles

Related articles

Trending Topics