Investing In Bonds Isnt Risky, Is It?

Bonds summarize all securities which guarantee interest payments and repayment of the principal value. These interest-bearing securities are launched by different issuers, e.g. states, industrial firms or banks, throughout the world.

The majority of these securities are quoted on the stock exchange.

Bonds consist of a bond certificate and a coupon sheet. The certificate embodies the creditor position and the coupon sheet consists of single coupons (interest warrants) and the talon.

There are a lot of different types of bonds. In the next section I will explain how investors can distinguish the bonds.

According to Grill&Perczynski (1999, p.209, p.211, p.226) bonds can be organized at the following criteria:

Issuer: public authority, banks, industrial companies

Interest charges: fixed, variable, non-interest-bearing

Run time: short term (until 4 years), medium-term (4-8 years), long term (from 8 years)

Repayment: total due (principal value will be paid back at maturity) sinking-fund bonds (are paid back in partial amounts), eternal loans (never paid back)

Due to the no interest payment until majority zero bonds haven't any coupon sheets.

With the purchase of floaters the investors must be aware that they can't expect a predicted yield, as the adapted interest rate of the floater is always changing.

For the issuers, convertible bonds are a tricky financing possibility. Usually they pay less interest than on straight bonds, because of the conversion right. And when the investors make use of the conversion the issuers don't have to pay interest and the principal value, so they safe money as the investors change from creditor to share holder.

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