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Corporate Government Bonds

Bonds are thought of as one of the safest forms of investment available. Bonds are a way for government and corporations to raise capital for projects, expansion and other works. A bonds works similar to an IOU. The bond holder purchases the bond for a certain price and holds onto it for an agreed amount of time. Over this time the bonds does two things. It will accumulate compounded interest which is paid on the day it matures. Bonds also pay interest to the bonds holder twice per year.

Government bonds are thought to be the safest option. They are backed with the full faith and credit of the US, state or local government that issues them. For the bond holder to loose their principal these entities would have to go bankrupt which is unlikely.

Municipal bonds are another option that involves slightly more risk. They operate on the same idea as government bonds. The main difference is that these are usually issues by entities that will have government support and backing. Power companies, water companies and various other utility providers are all examples of entities that might issue municipal bonds. The risk is higher but then so is the rate of return. Although they may not have the backing of the government the likelihood of these companies going bankrupt is still rather small.

Finally there are corporate bonds. These are the riskiest of the bond options because they have no backing. The bond holder is betting that the company doesn't go bankrupt before their bonds mature. Corporations sell bonds like the sell stocks. The one main difference is that bonds are debt where as stocks are actually an asset. A company that is performing well is a good possibility for those looking to purchase corporate bonds. The rate of interest is higher than government bonds but then so is the risk.

Some companies that are not performing well will still try and sell bonds to their investors. These are known as junk bonds and carry an extremely high level of risk. However if the company does manage to turn around the pay offs can be tremendous.

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