Government Bonds And ROI  

        A value of a bond is judged by the interest it pays. Usually the interest rate of a bond never changes even though the interest rate of the capital market keeps changing and fluctuating.

        A bond which pays high interest is the most coveted bond and investors are willing to pay more to own that particular bond. On the other hand, if a bond pays low interest, investors will not be willing to shell out money for it.

        However, interest rates and government bonds are intertwined. If interest rates go down, the value of the bond increases; and when interest rates increase, the value of the bond decreases. Usually there are several factors that determine whether or not a bond is worth investing in.

        Government bonds are usually for 30-year period. This means that the risk of inflation rising is high, and when inflation rises, the value bond will decrease. This results in the return of investment (ROI) being lower than what the investor originally paid.

        The good news is that many bonds that have maturity dates of five years or more are usually not held by the same investor from the date of issue until the date of maturity. Most investors trade their bonds in the secondary market where the price of the bond fluctuates according to the interest payment the bond gives. In addition, even the level of certainty to get back the principal amount along with the overall economic state of the country determines the ROI and interest rates.

        Government bonds are considered to be relative safe as the bonds are guaranteed by the government and pay a fixed rate of interest. In addition, the investor can be assured of ROI as government bonds usually do not default.

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