1300 W. Washington Street
Phoenix, AZ 85007-2996
Toll free in AZ
What Every Investor Should Know
When you own a bond you have loaned money to a company or a governmental body that issues the bond to raise capital. In return, the issuer promises to repay the amount borrowed (face amount) plus interest. Bonds may be sold at prices higher or lower than their face ("par") value. Generally, the higher the yield on a bond, the higher the risk of financial loss. More specifically, investing in bonds may involve:
Call risk — the potential for the issuer to repay the bond before its maturity date, which may happen if interest rates decline. Many municipal bonds (those issued by state or city governments) are "callable." Thus, investors should learn more about the call provisions of the bond before buying it.
Credit risk — the possibility that the bond issuer may default, meaning it cannot repay principal and interest to the investor. Investors should research the credit rating of the bond issuer, but there is no assurance that an "AAA" rating guarantees a certain investment return.
Interest rate risk — the potential for the market value of the bond to decline, if interest rates rise. Given that investors are attracted by higher rates, when the bond being sold offers a lower interest rate than the market, the bond is less desirable and therefore, less valuable.
Inflation risk — the potential for the market value of the bond to decline, if consumer prices increase. Inflation reduces the purchasing power of the dollar, which means investors who receives a fixed rate of return can buy less goods and services for their money.
Liquidity risk — the risk that there may not be an active market in which to sell the bond to another investor. Because the market for a particular bond may not be "liquid," prices quotes for the same bond may be different.
Read more about the various types of bonds and the risks associated with them before you invest.
The information provided on this website is not comprehensive, is not offered as legal or investment advice, and is not a substitute for competent legal or financial counsel. The Securities Division provides this information to give you an overview of the topics discussed. You should not rely on the accuracy of this information, but should carefully review all applicable statutes and regulations with the assistance of legal counsel.
Check here to sign up for Consumer Alerts from the Corporation Division. To receive alerts for your business register at eCorp.azcc.gov.Please call 602-542-3026 with questions for the Corporations Division.
Check here to sign up for Notices and Agendas for Commission Meetings, Hearings and Appearances.Please call 602-542-3931 with any questions.
Check here to receive the latest Commission News Releases and information. Please call 602-542-0728 with any questions.