A bond

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A bond, simply defined, is a type of investment which is very similar to an IOU. It is a loan in the form of a security with two basic components, the face value (principle), and the coupons (interest rate). The bond is a contract between the issuer and the bondholder to pay certain amounts of money in the future. The issuer of the bond promises to pay the bondholder principle and interest according to the terms and conditions listing in the bond. Many cities and countries issue bonds to fund new highways and other such projects. The definition of bond yield is the rate of return on the bond, which takes into account the sum of the interest payment, the redemption value at the bond’s maturity, and the initial purchase price of the bond. Yield on the bond relates to the return on the capital you invest in the bond. You will hear the term yield a lot as it relates to investing in bonds. There are many types of yields you’ll need to be aware of listed below.


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Current Yield The current yield calculates the percentage of the return that the annual coupon payment provides to the investor. It calculates the percentage of the actual dollar coupon payment is of the price the investor pays for the bond. This can be easily found by dividing the bond’s coupon yield by it’s market price. Coupon Yield The annual interest rate established when the bond is issued. Yield to Maturity This is the return that the investor will receive from their entire investment in the bond. Yield to Call Yield to call (YTC) is the interest rate that the bond holders would receive if they held the bond until the call date. The call date is the date on which a bond may be redeemed by the issuer before the bond’s maturity. If this happens, the bond will be redeemed at par or a higher value. Yield to Worst This is the lowest calculated rate that the bond holder will receive upon maturity or call date. It is typically calculated by conservative investors to determine the worst case scenario.Be sure to remember that once a bond is issued, the coupon interest rate is fixed. Therefore, if the market interest rates rise, then the price of the bond will fall so that the bond yield will be consistent with current market rates.

U.S. Treasury Bond A debt security backed by the full faith and credit of the United States government with a maturity of more than 10 years. They may be purchased directly from the government or from a bank; they have coupon payments payable every six months. Treasury bonds may be bought competitively or non-competitively. In a non-competitive transaction, one takes the interest rate he/she is given on a T-bond. In competitive investing, one bids on a desired yield, but this does not mean it will be accepted. Treasury bonds are low-risk, low-return investments. The minimum purchase is $1,000 and the maximum is $5 million in non-competitive bidding or 35% of the offering in competitive.

What Does Agency Bond Mean? A bond issued by a government agency. These bonds are not fully guaranteed in the same way as U.S. Treasury and municipal bonds.or A debt obligation owed by an agency of the U.S. government. While similar to a Treasury security, federal agency securities are issued by a particular agency of the federal government, rather than the federal government itself. Agencies that offer these securities include Ginnie Mae, the Federal Farm Credit Bank, and the U.S. Postal Service. With the exceptions of the Postal Service and the Tennessee Valley Authority, all federal agency securities are guaranteed by the U.S. government. They also offer higher interest rates than Treasury securities. Mortgage-A loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. Corporate Bonds These bonds are issued by corporations and are used to raise capital for the issuing companies. They range from investment grade to junk grade depending on the issuing companies Corporate zero-coupon bonds are issued by corporations and are generally not recommended for individual investors because of the risk of default private companies and because the yield tends not to be very competitive in relation to the risk of the instrument. Variable-rate corporate bonds are securities that have a coupon payment based on a "base rate" and a "spread." The base rate is usually United States treasury note or some high grade group of corporate bonds or corporate index. The spread is the additional amount of yield necessary to sell the variable-rate bond at a competitive rate. A treasury base yield of 5 percent and a spread of 1 percent would yield 6 percent to investors. There are 3 ways to close a futures position: 1. Delivery or cash settlement 2. Offset or reversing trade 3. Exchange-for-physicals (EFP) or ex-pit transaction Delivery Most commodity futures contracts are written for completion of the futures contract through the physical delivery of a particular good. Cash settlement Most financial futures contracts allow completion through cash settlement. In cash settlement, traders make payments at the expiration of the contract to settle any gains or losses, instead of making physical delivery.

Basics of Mutual Fund
Mutual Fund is one of the oldest and most widely used investment vehicles in the world. Conceptualized almost 300 years ago, the Mutual Fund structure has not only survived the test of time and the many ups-and downs of the world financial markets, but it has also flourished. Today the global Mutual Fund industry is gigantic, comprising of more than 80,000 individual funds with over US$26 trillion in assets under management. In terms of reach, over 300 million retail investors across a hundred countries invest in capital markets through Mutual Funds. In recent years, the Mutual Fund industry in Bangladesh has grown very rapidly. As of August 2009, 19 mutual funds were listed on the DSE that accounts for 5.8 percent of the total market capitalization. The Mutual fund growth in terms of turnover trebled in the third quarter of 2009. The Bangladeshi Mutual Fund industry stands at an estimated value of 10,500 crore BDT, of which almost 5,500 crore is close-ended Mutual Fund. With this staggering figure and more Mutual funds waiting to enter the capital market, Mutual Fund is undoubtedly the most promising sector in our capital market. Three main reasons why this industry has been so successful are: • Through the pooling of assets, Mutual Funds offer you access to professional management at a minimal cost • Mutual Funds help small investors reduce their investment risks through diversification • Due to strict regulatory oversight and separation of the investment, custodial and oversight functions, Mutual Funds offer one of the most transparent and safe investment vehicles

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