Question

Bonds are issued by the Treasury, corporations, and municipalities. What are some common characteristics of these bonds and what are their differences? (risk, taxes, purpose for issue, how they are repaid)

Answer 1

Followings are the key characteristics common to all bonds ;

1. Face value;

This is the common characteristic of the bond because every type of bond has face value attached to it.

2. Coupon or yield;

It is normal returns to the bondholders made by the company. Hence we can say that coupon or yield is the timely returns on the invested amount.

3. Maturity;

Maturity refers to the end period of the bond. In other words we can say that maturity is the date at which bonds will be repaid.

4. Issuer;

Issuer is the party which issues these securities to the buyers. Hence we can say that in case of all types of bonds there will be an issuer.

Followings are the differences between these bonds;

	Treasury Bond	Muncipal Bond	Corporation Bond
1. Risk	Treasury bonds are very safe hence these are known as risk free.	Muncipal bonds are less risky.	Corporation bonds are very risky in compare to other types of bonds.
2. Returns	Treasury bonds give normally lower return because due to low risk return offered is low.	Muncipal bonds give higher return due to higher risk.	Corporation bonds give higher return due to higher risk in compare to other bonds.
3. Tax	Interest of treasury bonds is taxable at federal level but exempt from state and local taxes.	Interest on municipal bonds is exempt at federal level and may be exempt at state and local level too.	The interest from corporate bonds is subject to taxation at both the federal and state level.
4. Liquidity	Treasury bonds are highly liquid.	Muncipal bonds are less liquid.	Corporation bonds are less liquid.