What Are a Bond and Coupons?

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A bond is a type of investment that pays interest periodically. Usually, a bond pays interest twice a year. However, these investments have certain risks. A bond issuer could default or go bankrupt before its maturity date, meaning you would lose money. Fortunately, most bonds are issued electronically and do not have physical copies.

What Are a Bond and Coupons?

A bond’s coupon represents the interest the bondholder will receive each year. Typically, the coupon equals 7% of the bond’s face value. A bond with a 7% coupon would pay the holder $70 per year. However, coupons aren’t always the same. In some cases, coupon payments are semiannual, while others are annual.

What Are a Bond and Coupons?

While the basic design of a bond is simple, the pricing remains a critical issue Blue Sky Promo Deal. If there is a high risk of default, a bond issuer may be required to charge a higher rate of return to offset the risk of default.

While coupon bonds aren’t ideal for everyone, they’re a good choice for systematic investment plans. For example, they’re a great way to invest for a vacation home in retirement, and bearer bonds are suitable for transferring wealth to heirs.

Coupon bonds are often bearer bonds, meaning there’s no registered owner. The legal owner of the bond is the person who owns the physical certificate. Unfortunately, since issuers rarely keep track of their original owners, bearer bonds are vulnerable to theft. If someone finds your bond certificate, they can demand payment from your broker or bank. Fortunately, physical coupon bonds are becoming less common.

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