From time to time each of us has to borrow money. Many organizations (such as governments, corporations), as well as ordinary people, also often require money from outside.
Here only to borrow large sums of money by legalPeople are much more difficult. Instead of simply promising to return the money they borrowed, organizations have to borrow money, promising to return them with a reward.
Bonds are one such type of borrowing.
In the most general form, the bond is aA debt obligation sold by the issuer to the public in fixed amounts. Lent money at the same time change to a sheet of paper, which indicates how many people lent, for what percentage, for how long.
This form of commitment is widely used by governments to fund their activities or cash-limited companies seeking to expand production and their market share.
For comparison, bonds with other investmentInstruments use the category of return on this security. You can calculate the yield on the bond by dividing the amount of interest payments for the year by the current price of the paper.
So, if a bond worth $ 2,000 brings you$ 150 revenue per year from interest, then its current yield will be $ 150 divided by $ 2000 and multiplied by 100, that is, 7.5%. Current yield: $ 150 / $ 2000 = 0.075 (7.5%)
Consider that when assessing the yield of a bondYou can not just take as a basis its coupon rate. Bond prices may change in accordance with interest rate fluctuations, so that the bond may be sold at a price different from the nominal value of the security. If you hold the bond before the maturity date, you are guaranteed to receive its basic value. But if you want to part with a bond earlier than maturity, you will have to sell it at the current price, which can be either higher or lower than the nominal.