Stocks and Bonds

Ultimately the reason why anyone would be willing to invest in anything is so that they are able to earn a return on their investment, and bonds are no exception. A bond is referred to as a type of fixed income security and is one of the three main asset classes. When investing in bonds we have five different types in which to choose from that each have their own unique characteristics that help determine if this bond is right for you and your investment strategies.

In the reading the book listed the five types of bonds that appeal to investors. First we have Debentures which are a form of debt security, or an ‘IOU’ issued by a company. A debt security represents borrowed funds that the borrower has an obligation to repay, and includes such financial instruments tendered as bonds and certificates of deposit. The next type of bond that we will be discussing is Subordinate Debentures. Subordinate Debentures are bonds that have a claim to assets that is subordinate to all existing and future debt that is acquired by the company. This means that the subordinate debenture has a low priority for payment and if another debt in incurred the payment of that debt has priority for payment before the subordinate debenture will be paid. Because of this risk the issuer of the subordinate debenture will pay a relatively high interest rate just to be able to sell these securities to investors. Mortgage Bonds is a bond that will be secured by a lien being placed upon some type of real property. In most cases the value of that real property has a much higher value than that of the bond being sold. Since the value of the real property outweighs that of the bond it provides a security in the event that the market value of the bond would decline. Eurobonds are classified as an international bond that is issued to someone in another form of currency than from which the currency of the bond is being allocated from. This type of bond is very attractive to issuers because it allows...