The Concept of Yield to Maturity-MBA 503

All storehouse investors should know about follows. Bonds are the other type face up of the investing coin that may help keep a portfolio afloat in troubled times. Although less exciting than stocks, bonds persist a critical role in our economy and an fundamental role in every well-balanced portfolio. A bond is an ?I owe you? outputd by a corporation, government, or governmental agency to cover money the bondholder has lent. (Little, K. 2004).If a person owns stock in a company, they are a part proprietor of the company. (Little, K. 2004). As a bondholder, that same person is a creditor. (Little, K. 2004).

incorporate bonds usually begin in $1,000.00 denominations and have maturities ranging up to 40 years, however they are usually shorter. (Investopedia, 2000). Governments and governmental agencies also answer bonds to raise money. (Investopedia, 2000). U.S. Treasury Bonds are the most secure investments in the world because the U.S. Government backs them with its ?full faith and credit.? (Investopedia, 2000). U.S. Treasury issues come in several maturities and denominations. (Investopedia, 2000). Other U.S. agencies issue bonds to fund such(prenominal) things as mortgages and other government programs. (Investopedia, 2000). Municipal governments also issue bonds, which they often use to build roads or practice other infrastructure projects. (Investopedia, 2000).

There are four sanctioned concepts to understanding bonds (1) Par value, also known a face or principal value, is how much the bondholder will receive at maturity. (Little, K. 2004). A $1,000.00 par value bond will be worth $1,000.00 when it matures. (Little, K. 2004). (2) Coupon rate, which is the interest rate the bond pays. (Little, K. 2004). It is called the voucher rate because bonds once came with a book of coupons, which the holder had to pinch and send in to receive an interest payment. (Little, K. 2004). This...

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