What are bonds and how to make money on them

[messi69]

Every beginning investor strives to reduce the risks of losing their capital. That is why many begin their acquaintance with the stock market with bonds, as the most conservative and less risky instrument. What are bonds and how to make money on them, we will analyze in today's article.

What are bonds?
A bond (in foreign sources you can find the term “Bond”) is essentially a promissory note, according to which the issuer (the one who issued the paper) borrows money from you and guarantees to return the money on this paper (face value) + interest ( coupons ) within the specified time frame.



That is, investors who buy bonds actually lend gambling data mexico money to organizations, states or municipalities. The maturity dates , as well as interest (coupons), are usually known in advance. This is what makes bonds a more reliable instrument , since their profitability is known in advance.

Let's look at an example. One company wants to expand its business, but does not have enough funds to do so. It decides to issue bonds to raise the money needed to launch. Let's say, for simplicity of calculations, the company needs 100 thousand rubles. It decides to issue 100 bonds with a par value of 1,000 rubles, a maturity of 1 year and a fixed coupon of 25 rubles quarterly.

Thus, by buying this bond for 1000 rubles, you lend this money to the company for its purposes. And as, so to speak, gratitude for using your money, the company pays you interest, called a coupon, in the amount of 25 rubles every quarter. In total, in a year you will be able to earn: 25 + 25 + 25 + 1025 = 1100 rubles. The yield on such a bond will be: 100/1000 = 10% per year.

This yield can be estimated in advance based on the terms of the bond placement. Therefore, bonds are considered a less risky instrument, the main risk here is the bankruptcy of the issuer. In this case, you can lose the invested funds, because there is no insurance here, as, for example, for deposits.