Investing in Bonds

Types of Bonds

1

There are several types of bonds but the main types are: fixed-rate bonds (interest stays the same), floating-rate bonds (interest changes with the market), zero-interest rate bonds, and inflation-linked bonds.

2

Zero-interest rate bonds don’t pay any interest but are issued at a discount. The investor makes a profit on the redemption date. Inflation-linked bonds pay interest at the same rate as inflation.

3

Bonds are usually classified based on their maturity terms. A short-term bond will run for less than 7 years, a medium-term bond will run for 7 to 15 years, while long-term bonds run for more than 15 years.

4

Sometimes investors can have the option to turn a bond into stock. This happens with convertible bonds, which allow an investor to convert a bond into the stocks of a company on redemption day.

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