Asset allocation is the foundation of prudent investing and Bonds are the cornerstones of prudent Asset allocation. But do you understand the critical characteristics of bonds?
 
A bond is a loan that an investor makes to a corporation, government, federal agency, or other organization. Consequently, bonds are sometimes referred to as debt securities. Since bond issuers know you aren't going to lend your hard-earned money without compensation, the issuer of the bond (the borrower) enters into a legal agreement to pay you (the bondholder) interest (Coupon).
 
The bond issuer also agrees to repay you the original sum loaned at the bond's maturity date, though certain conditions, such as a bond being called, may cause repayment to be made earlier. The vast majority of bonds have a set maturity date - a specific date when the bond must be paid back at its face value, called par value. Bonds are called fixed-income securities because many pay you interest based on a regular, predetermined interest rate-also called a coupon rate - that is set when the bond is issued.
 
There are a number of key variables to look at when investing in bonds:

• Interest Rate
• Maturity
• Credit quality
• Price
• Yield
• Accrued Interest
• Zero-Coupon Bonds
• Duration
• Market Fluctuation : The link between