Advantages and Disadvantages of Investing Bond-Finance.Docx Uploaded Successfully

Topics: Mutual fund, Bond, Subprime mortgage crisis Pages: 2 (632 words) Published: March 12, 2013
Advantages and Disadvantages of Investing Bond
Investment are usually comes with risk and there have their own pros and cons themselves. Bond is normally known to be safer and low risk compared to invest in shares. Yet, there are some advantages and disadvantages that have to be take note as follow before investing:

a) Advantages of Investing Bond
i. Predictable Advantages
Bonds are predictable. You know how much interest you can expect to receive, how often you'll receive it, and when your principal (the bond's face value) will be repaid (maturity date). ii. Income Advantage

An advantage of bonds is that they tend to be a more secure place to invest money than stocks. Bonds are debt securities. When you buy a bond you are lending money to someone who promises to pay you back with a set amount of interest by a specified date. Bonds can be issued by a government entity, a business or a private issuer. Bonds can be traded like other securities, so their purchase price can change. However, the fluctuation of the price tends to be less volatile than stocks.

b) Disadvantages of Investing Bond
i. Rating Advantage
Bonds are subject to ratings systems. This allows investors to gauge how reliable a bond is expected to be. There are several companies that assign letter grades to bonds based on their credit worthiness. AAA is the highest rating. A bond rated AAA is considered very likely to be repaid on time and in full. There are also ratings of AA, A, BBB, BB, B, CCC, CC, C and D. Bonds rated with Cs are considered unreliable and referred to as "junk bonds." A bond rated D is in default. Treasury bonds backed by the United States government have no ratings. They are considered the safest bonds of all. Many bond mutual funds guarantee investors that they will only buy AA bonds or better. ii. Security Disadvantage

Bonds are only as good as the borrower's ability to pay the loans back. If the issuers of the bonds cannot pay back what they agreed to,...
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