Understanding How Bonds Work as Investment Vehicles investments, unlike stocks. As an investor in bonds, you would lend money to the issuer of the bonds. It is important to what berstand and how they work as investment vehicles. friend the appropriate information regarding mortgage bonds. FRIEND: Can you explain to me the basics of how investing in a mortgage bond will increase my current income? YOU: Under a standard bond agreement, if you were to purchase a 15-year, $25,000 mortgage bond with a 7% coupon, you would receive in interest each year, and at the end of the 15 -year period, you would receive the par value of FRIEND: OK, and am I guaranteed to receive these interest payments and the par value? FRIEND: Are there any other general features I should be aware of? YOU: Mortgage bonds are a type of , issued by political subdivisions of the U.S. government, but are not actually obligations the U.S. Treasury. Another common feature of mortgage bonds is that they issuer can retire the bond (by paying you back and ceasing to pay interest payments) at any point before the maturity date. FRIEND: So if the interest rate were to fall and the issuer were able to retire my bond, I would be off than if I were to continue holding the bond, because if I reinvest the money the issuer returns to me, I would receive a interest rate. YOU: Exactly. In such a case, the issuer would pay you a , but this generally would not fully compensate you for your loss. FRIEND: Got it. Thanks for your help! YOU: Any time! Understanding How Bonds Work as Investment Vehicles investments, unlike stocks. As an investor in bonds, you would lend money to the issuer of the bonds. It is important to what berstand and how they work as investment vehicles. friend the appropriate information regarding mortgage bonds. FRIEND: Can you explain to me the basics of how investing in a mortgage bond will increase my current income? YOU: Under a standard bond agreement, if you were to purchase a 15-year, $25,000 mortgage bond with a 7% coupon, you would receive in interest each year, and at the end of the 15 -year period, you would receive the par value of FRIEND: OK, and am I guaranteed to receive these interest payments and the par value? FRIEND: Are there any other general features I should be aware of? YOU: Mortgage bonds are a type of , issued by political subdivisions of the U.S. government, but are not actually obligations the U.S. Treasury. Another common feature of mortgage bonds is that they issuer can retire the bond (by paying you back and ceasing to pay interest payments) at any point before the maturity date. FRIEND: So if the interest rate were to fall and the issuer were able to retire my bond, I would be off than if I were to continue holding the bond, because if I reinvest the money the issuer returns to me, I would receive a interest rate. YOU: Exactly. In such a case, the issuer would pay you a , but this generally would not fully compensate you for your loss. FRIEND: Got it. Thanks for your help! YOU: Any time
