Pricing

• The par, or value, of a bond is $1,000, but is expressed as 100. Not all bonds have par values of 100. A bond selling at 86.54 is valued at $865.40, which is a discounted bond. Treasury Bills are usually sold at a discount. The coupon is the interest given to rate bond investors. A ten-year bond with a coupon rate of 12 percent will pay $60 every six months to investors for each bond held. When the bond becomes due, investors receive back their principal of $1,000.
  
  

Risks

• Fixed-rate securities are subject to interest rate risk because a bond's market price is inversely related to interest rates. When prevailing market interest rates are high, bond prices decline. Conversely, if market interest rates are low, bond prices rise. The idea is if market interest rates are high, bond investors would rather get a higher return on newly issued bonds featuring the prevailing higher interest rates. Some other risks include credit, prepayment, reinvestment, volatility and yield curve risk.
  
  

Ratings

• Credit rating agencies such as Moody's and Standard & Poor's assess the creditworthiness of bond issuers. The highest rating from Moody's is Aaa. This means that bonds are of the highest quality with very little credit risk. This gives the issuer the ability to borrow money from bond investors at lower interest rates compared to less creditworthy borrowers.
  
  

Considerations

• The bond market is deep and offers investors a variety of bonds to purchase. Besides fixed-rate securities, investors can invest in inflation-linked bonds, floating rate notes, zero coupon bonds and perpetual bonds that have no maturity.A state or local government issues municipal bonds. The benefit of these bonds is that the interest payments are exempt from federal taxes and the taxes from the issuing state.