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A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as an issuer. In return for that money, the issuer provides you with a bond in which it promises to pay a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due.
Two features of a bond – credit quality and duration – are the principal determinants of a bond’s interest rate. Bond maturities range from a 90-day Treasury bill to a 30-year government bond. Corporate and municipals are typically in the three to 10-year range.
CORPORATE BONDS: A corporate bond is a loan to a corporation. When you invest in a bond, the corporation pays interest on the value of the bonds you purchased. At a stated date in the future (maturity date), the company returns your principal. The maturity date on corporate bonds can range from one to 40 years.
GOVERNMENT BONDS: Government of Canada bonds are issued by the federal government and are among the most secure investments available. The are backed by the full faith and credit of the government and are guaranteed as to the timely payment of principal and interest.
PROVINCIAL BONDS: Provincial bonds are issued by the provincial government and are one of the most secure investments available. They are backed by the full faith and credit of the provincial government and are guaranteed as to the timely payment of principal and interest.
RETIREMENT SAVINGS BONDS: (RSBs) combine the benefits of zero coupon bonds, known as STRIPS, and Provincial Bonds in a package to provide an investor with an enhanced level of income at a future date, referred to as the Payout Date. In addition to the deferred income, the initial capital investment is also returned to the investor at maturity.
STRUCTURED BONDS: can be extendible or stepped up. Extendible bonds offer predetermined interest payments like other bonds. Each year, if the bonds are not called, the investor is paid a stepped-up coupon according to the rate schedule. This stepped-up rate is the compensation for the risk of extending towards final maturity
U.S CORPORATE BONDS: U.S. corporate bonds are issued by U.S. corporations and provide income in U.S. dollars. These issues count against foreign content.
YANKEE BONDS: Yankee bonds are bonds issued by provincial governments or Canadian corporations that provide income in U.S. dollars. They are backed by the full faith and credit of the issuing provincial government or corporation.
ZERO COUPON BONDS: Zero coupon bonds are backed by the full faith and credit of the issuer. These securities, known as STRIPS, are issued directly by the issuer. These bonds are offered at a deep discount and mature at face value. They compound semi-annually at the corresponding yield the investor locks in at the time of purchase.
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