Bonds with Special Investment Features

Variable rate bonds. The interest rate of these bonds is calculated periodically, and is typically based upon a percentage of prevailing rates for Treasury bills and other interest rates.

Put bonds. Some bonds have a “put” feature which allows you to sell the bond at par value on a specified date before its maturity date and recoup the principal and accrued interest.

Zero-coupon, compound-interest and multiplier bonds. These are issued at a deep discount to the maturity value and do not make periodic interest payments. At maturity, an investor will receive one lump sum payment equal to principal invested, plus interest compounded semiannually at the original interest rate. Because they do not pay interest until maturity, the prices of these bonds tend to be volatile. These bonds may be attractive if you seek to accumulate capital for a long-term financial goal such as retirement planning or college costs.

Insured municipal bonds. Some municipal bonds are backed by municipal bond insurance specifically designed to reduce investment risk. In the unlikely event of payment default by the issuer, an insurance company, which guarantees payment, will send you both interest and principal when they are due.


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