Two of the best known ratings are standard poors and

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Unformatted text preview: turity date is 10 years, the coupon rate is 7 percent, and the face value is $100,000. EXAMPLE: Bond Ratings Bonds are rated or evaluated. The more likely the bond issuer will pay the face value of the bond at maturity and will meet all scheduled coupon payments, the higher the bond’s rating. Two of the best known ratings are Standard & Poor’s, and Moody’s. A bond rating of AAA from Standard & Poor’s or a rating of Aaa from Moody’s is the highest rating possible. A bond with this rating is one of the most secure bonds you can buy; the bond issuer is almost certain to pay the face value of the bond at maturity and meet all scheduled coupon payments. Bonds rated in the B to D category are lower-quality bonds than those rated in the A category. In fact, if a bond is rated in the C category it may be in default (the issuer of the bond cannot pay off the bond) and if it is rated in the D category, it is definitely in default. An effective, practical way for young people to begin saving and investing is to buy U.S. savings bonds. Issued by the U.S. government, these bonds can be purchased in smaller, more affordable denominations than most other bonds. QUESTION: Suppose I want to buy a bond issued by some corporation. Would I buy the bond from the corporation itself or from someone else (say, for example, from a person who had purchased a bond from the corporation at an earlier time)? ANSWER: If the corporation is currently issuing (selling) bonds, you could buy the bond from the corporation. You would purchase them through a broker who is finding buyers for the bonds the corporation wants to sell. If the corporation is not currently issuing bonds, you could buy the bond from someone who purchased and still holds the bond bought from the corporation at an earlier date. Primary market and secondary market are the terms that apply here. If you are buying a bond that is newly issued, you are buying it in the primary market; if you are buying a bond from someone who currently owns the bond, you are buying it in the secondary market. By far, most bond and s...
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