What Is The Interest Rate On A Bond?

A bond is an instrument of investment used by private corporations, governments, and other entities in an effort to raise capital.  The capital is used by the bond issuer when the purchase of a bond is made to run their business or government institution.  Bond prices can be established by the issuer for a specific purpose, or selected in the amount the buyer wishes to invest when applicable.  A bond has a set maturity date, meaning a time established when it will be worth a said amount of money.  The bond is purchased prior to this time, which can be from a few months to several years or even decades as in the case of government bonds, for a discounted price.  The difference between the discounted price and the maturity price is the money to be made off the bond investment.  Bonds are generally considered safer investments than buying stock in companies or mutual funds as their interest income potential is specified.  In the case of a government bond, your return on investment is all but guaranteed.

Different Bonds Mean Different Interest Rates

Not all bonds are created equal.  In fact they vary widely in both their duration, and more specifically to the information provided here, in their interest rate at which they accrue money.  Interest on bonds can range from as low as less than 1% annual return to more than 5 or even 6% or more.  The variance is based on the issuer of the bond, the length to maturity, and to some lesser extent the overall value of the bond.  Typically speaking, the safer the investment and the shorter duration of the bond contract will translate into lower returns.  Why?  Because there is not much money to be made by the bond issuer on these shorter contracts, so there is less incentive to pay you for your invested capital.  In all cases a government bond, regular treasury bonds, treasury notes, municipal bonds, etc. will all pay the lowest return.  The advantage to these bonds is in their security.  It is near guaranteed that the government will not collapse leaving your bond worthless.  For this the return on your investment is less, but at least the return is essentially all but guaranteed.

Examples Of Typical Bonds And Their Interest Amounts

The following is a list of current amounts of treasury bond contract times for T-bills and their corresponding interest amounts paid out to the bond holder.  These are accurate as of November, 2009, and subject to change.

Normal Yield (Coupon Rate):  This rate of return is what is paid on the amount issued for the bond.

4 Week Bond Period:  .06%

13 Week Bond Period: .07%

23 Week Bond Period: .16%

52 Week Bond Period:  .30%

Related posts:

1. What Is A Treasury Bond?
2. What Is The Bond Rate?
3. What Are Interest Bonds?
4. What Is Bond Maturity?
5. What Are Bonds Investments?