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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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- Winter '14