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When you invest in a bond, you buy the debt of
its issuer, which might be the U.S. government or an affiliated entity, a
state or city government or borrowing authority, or a corporation. Every
bond has certain characteristics:
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A definite maturity date when the bond issuer
promises to repay the bondholder who owns the security at the time.
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A promise to pay taxable or tax-exempt interest
at a stated ?coupon? rate in defined intervals over the life of a bond.
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A yield, or return on investment, which is a
function of the bond?s coupon rate and the price the investor pays, which
may be more or less than the bond?s face value depending on a variety of
factors.
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A credit rating indicates the likelihood that
the issuer will be able to repay its debt.
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