A bond, simply defined, is a type of investment which is very similar to an IOU.

It is a
loan in the form of a security with two basic components, the face value (principle), and
the coupons (interest rate). The bond is a contract between the issuer and the bondholder
to pay certain amounts of money in the future. The issuer of the bond promises to pay the
bondholder principle and interest according to the terms and conditions listing in the
bond. Many cities and countries issue bonds to fund new highways and other such
projects.

The definition of bond yield is the rate of return on the bond, which takes into account the
sum of the interest payment, the redemption value at the bond’s maturity, and the initial
purchase price of the bond. Yield on the bond relates to the return on the capital you
invest in the bond. You will hear the term yield a lot as it relates to investing in bonds.
There are many types of yields you’ll need to be aware of listed below.

• Current Yield
The current yield calculates the percentage of the return that the annual coupon
payment provides to the investor. It calculates the percentage of the actual dollar
coupon payment is of the price the investor pays for the bond. This can be easily
found by dividing the bond’s coupon yield by it’s market price.
• Coupon Yield
The annual interest rate established when the bond is issued.
• Yield to Maturity
This is the return that the investor will receive from their entire investment in the
bond.
• Yield to Call
Yield to call (YTC) is the interest rate that the bond holders would receive if they
held the bond until the call date. The call date is the date on which a bond may be
redeemed by the issuer before the bond’s maturity. If this happens, the bond will
be redeemed at par or a higher value.
• Yield to Worst
This is the lowest calculated rate that the bond holder will receive upon maturity
or call date. It is typically calculated by conservative investors to determine the
worst case scenario.Be sure to remember that once a bond is issued, the coupon
interest rate is fixed. Therefore, if the market interest rates rise, then the price of
the bond will fall so that the bond yield will be consistent with current market
rates.

U.S. Treasury Bond

A debt security backed by the full faith and credit of the United States government with a
maturity of more than 10 years. They may be purchased directly from the government or
from a bank; they have coupon payments payable every six months. Treasury bonds may
be bought competitively or non-competitively. In a non-competitive transaction, one
takes the interest rate he/she is given on a T-bond. In competitive investing, one bids on a
desired yield, but this does not mean it will be accepted. Treasury bonds are low-risk,
low-return investments. The minimum purchase is $1,000 and the maximum is $5 million
in non-competitive bidding or 35% of the offering in competitive.
What Does Agency Bond Mean?
A bond issued by a government agency. These bonds are not fully guaranteed in the
same way as U.S. Treasury and municipal bonds.or A debt obligation owed by an agency
of the U.S. government. While similar to a Treasury security, federal agency securities
are issued by a particular agency of the federal government, rather than the federal
government itself. Agencies that offer these securities include Ginnie Mae, the Federal
Farm Credit Bank, and the U.S. Postal Service. With the exceptions of the Postal Service
and the Tennessee Valley Authority, all federal agency securities are guaranteed by the
U.S. government. They also offer higher interest rates than Treasury securities.
Mortgage--
A loan to finance the purchase of real estate, usually with specified payment periods and
interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the
property as collateral for the loan.

Corporate Bonds These bonds are issued by corporations and are used to raise capital
for the issuing companies. They range from investment grade to junk grade depending on
the issuing companies
Corporate zero-coupon bonds are issued by corporations and are generally not
recommended for individual investors because of the risk of default private companies
and because the yield tends not to be very competitive in relation to the risk of the
instrument.

Variable-rate corporate bonds are securities that have a coupon payment based on a "base
rate" and a "spread." The base rate is usually United States treasury note or some high
grade group of corporate bonds or corporate index. The spread is the additional amount
of yield necessary to sell the variable-rate bond at a competitive rate. A treasury base
yield of 5 percent and a spread of 1 percent would yield 6 percent to investors.
There are 3 ways to close a futures position:
1. Delivery or cash settlement
2. Offset or reversing trade
3. Exchange-for-physicals (EFP) or ex-pit transaction
Delivery Most commodity futures contracts are written for completion of the futures
contract through the physical delivery of a particular good.
Cash settlement Most financial futures contracts allow completion through cash
settlement. In cash settlement, traders make payments at the expiration of the contract to
settle any gains or losses, instead of making physical delivery.
Basics of Mutual Fund

Mutual Fund is one of the oldest and most widely used investment vehicles in the world.
Conceptualized almost 300 years ago, the Mutual Fund structure has not only survived
the test of time and the many ups-and downs of the world financial markets, but it has
also flourished. Today the global Mutual Fund industry is gigantic, comprising of more
than 80,000 individual funds with over US$26 trillion in assets under management. In
terms of reach, over 300 million retail investors across a hundred countries invest in
capital markets through Mutual Funds. In recent years, the Mutual Fund industry in
Bangladesh has grown very rapidly. As of August 2009, 19 mutual funds were listed on
the DSE that accounts for 5.8 percent of the total market capitalization. The Mutual fund
growth in terms of turnover trebled in the third quarter of 2009. The Bangladeshi Mutual
Fund industry stands at an estimated value of 10,500 crore BDT, of which almost 5,500
crore is close-ended Mutual Fund. With this staggering figure and more Mutual funds
waiting to enter the capital market, Mutual Fund is undoubtedly the most promising
sector in our capital market.

Three main reasons why this industry has been so successful are:

• Through the pooling of assets, Mutual Funds offer you access to professional
management at a minimal cost

• Mutual Funds help small investors reduce their investment risks through diversification

• Due to strict regulatory oversight and separation of the investment, custodial and
oversight functions, Mutual Funds offer one of the most transparent and safe investment
vehicles