Previously, I broke down some of the most common terms associated with bonds and what they mean. But there was one term I left unexplained – and often, it’s the one you hear the most about in the media. I’m referring to a bond’s yield. So, without further ado, let’s answer: Questions You Were Afraid to Ask #9:What are bond yields and why do they matter? Super-quick refresher on four of the terms we defined last time, because they’ll play a role here, too: Par Value: This is the amount that must be returned to the investor when the bond matures – essentially, the original investor’s principal. (Many bonds are issued at a par value of $1,000.) Coupon Rate: This is the bond’s interest rate, paid by the issuer at specific intervals. For instance, let’s say you owned a $1,000 bond with a 10% annual coupon rate. The issuer would...
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