Bonds:- All you need to know
There are many types of financial securities that people can buy to generate wealth. Bond is one among them. It is a debt security, where the person who buys the bond is the Creditor and one who issues the bond is the Debtor. There are a few terms related to bonds which you need to know before you go off and start buying up debts. Every bond will have following things:--
1. Coupon:-- the interest
2. Face Value:-- the principal amount, the amount you have to pay to buy the bond. The interest or coupon gets calculated on top of the face value.
3. Maturity Period:-- the time after which the face value gets paid back to you.
A bond is a kind of loan. Only in this case you become the bank(creditor), and the one who sells the bond becomes the debtor. The art of making money lies in creating a lot of debt and staying on the right side, that is be the creditor. If you want wealth, then buying up bonds is a good way to get there.
Like we said before, a bond will have a coupon, face value and a maturity period. The coupon is the interest of the face value that you will get. For eg, lets imagine that you buy a bond having a face value of $20,000 and a coupon of 10% from the Lloyd's bank. Then Lloyd's bank would be obliged to pay you $2000 per year to your account. And every bond has maturity period. If the bond you buy from Lloyd's matures in ten years, then every year for the next ten years around $2000 gets paid to you. And at the end of those 10 years when your bond becomes mature, the principal amount gets paid back to you.
Of Course a question can rise. Why would a bank like Lloyd issue bonds in the first place? The answer is simple. The reason for doing it is money. Money is the driving force of any business. No matter how big or small the business be, without regular injection of money into the system it won’t be possible to keep any business alive. It will take money to make money. So before all the profits can come in, a business would need to raise capital. Thus a company like Lloyd's can have many options,
1) Sell Stocks or Shares, here Lloyd's would be selling the ownership of the company to others.
2) take loans from the public, create a profitable business and pay back at a later time.
If you are someone interested in growing your wealth, then surely bond is an area you cannot overlook. It is something which you surely should master and try to learn more about.