| As we mentioned in previous article, we know | | | | government treasury bill rate. |
| that our government only represents about 30% | | | | 5. Fluctuation of pricesa) Even though, When a |
| of our retirement income, the company | | | | bond is issued, the interest rate is fixed for the |
| retirement pension plan offers another 30 % and | | | | entire term but changing economic interest rates |
| many of us do not have one. It is up to individuals | | | | create some fluctuation of prices |
| to invest wisely short and long term in order to | | | | Example: |
| make up for the short fall if he or she would like | | | | The bond price is lower with interest rate of 5%, |
| to live comfortably after retirement without giving | | | | if other more recently issued debt securities are |
| up some retirement plans. In this article, we will | | | | near 10%.b) If interest rates have fallen since this |
| discuss the special features of bonds and | | | | bond was issued, it can be sold for a price greater |
| debentures. | | | | than par at a premium. |
| 1. Callable bondsa) Callable bonds means the bond | | | | 6. Yield to maturitya) Yield of the bonds mean the |
| issuers can recall the bond before the maturity | | | | annual return from an investment expressed as a |
| date.b) All Bonds are assumed to be non-callable, | | | | % of its market priceb) At maturity, holder of |
| unless otherwise stated in the prospective when | | | | the bond receive the face value of the bond |
| bonds are issued.c) Like other bonds, investors | | | | regardless of the price paid for it.c) If there are |
| wanting to sell a callable bond must find a buyer | | | | accrued interest owing on a bond, but not yet |
| or wait until the maturity date. | | | | paid than bonds are sold at a certain price, plus |
| 2. Convertible bonds | | | | accrued interest. |
| Some bonds give bondholders the option of | | | | 7. Commission for bond sellinga) Commission is not |
| exchanging the security for a specified number of | | | | charged on bonds, instead, the dealers add their |
| common shares of the company allowing the | | | | profit to the buying or selling price known as |
| investors of a debt security the possibility of | | | | spread. |
| capital gain. | | | | Example: |
| 3. Retractable bonds | | | | $1,000 bond may be sold to a broker for $965, |
| Retractable bonds permit the holder to shorten | | | | or purchased for $980. The broker makes $15 |
| the maturity date are called retractable bonds. | | | | for purchasing and selling the same bond. The $15 |
| 4. Floating Ratefloating rate means that the bond | | | | is a spread. |
| interest rate changes according to the current | | | | |