| A
bond is considered a debt investment - you are loaning money to an
entity (company or government) that needs funds for a defined period
of time at a specified interest rate. In exchange for your money,
the entity will issue you a certificate, or bond, that states the
interest rate you are to be paid and when your loaned funds are to
be returned (maturity date). Interest on bonds is usually paid every
six months (semiannually).
Corporate bond: A bond is issued by a corporation.
Municipal bond: A bond issued by a municipality and that generally is tax-free - you pay no taxes on the interest you earn. Because it its tax-free, the interest rate is usually lower than for a taxable bond.
Treasury
bond: A bond issued by the US Government. These are considered
safe investments because they are backed by taxing authority of
the US government. The interest on Treasury bonds is not subject
to state income tax. T-bonds have maturity's greater than 10 years,
while notes and bills have lower maturity's.
Treasury note: The only difference is that a Treasury note is issued for a shorter time (e.g., two to five years) than a Treasury bond.
Treasury bill: This is held for a shorter time (e.g., three, six, or nine months to two years) than either a Treasury bond or a Treasury note. Interest on T-bills are paid at the time the bill matures, and the bills are priced accordingly.
Zero coupon bonds: A bond that generates no periodic interest payments and is issued at a discount from face value. The Return is realized at maturity.
|
Dictionary
