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Question:
My
wife has some bonds that she was told are put bonds.
We'd like to sell them and use the money for a down
payment on a house, but we don't know what they are
and how to sell them.
Ralph
Marche
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Answer:
Dear
Dear Mr. Marche,
It's
not surprising that you are unfamiliar with the intricacies
of put bonds -- they're not very common.
A
put bond is one that enables the bondholder (in this
case, your wife) to make the issuer (most likely a
municipality or a corporation) repurchase the bonds
before they reach maturity. In other words, the owner
can "put" the bonds back to the issuer, but only on
a certain date or dates.
The
ability to "put" comes with one of two time frames:
1)
Only once during the life of the bond. (This is
officially known as a "one-time put bond.")
2)
Different dates over the life of the bond. The typical
scenario is once a year.
The
repurchase price, along with the date or dates for
putting the bonds back to the issuer, are announced
at the time the bond is issued. The price, incidentally,
is usually at par value.
The
advantage of a put bond is that you can receive your
money back without waiting years until the maturity
date. However, in exchange for giving the bondholder
the right to redeem the bond at par before maturity,
the issuer typically pays a lower interest rate than
on equivalent non-putable bonds.
Put
bonds are not traded at BUYandHOLD. I recommend that
you speak with someone in the transfer agent's Customer
Service Department who might be able to help you determine
when your wife can put the bonds back to the issuer
and, if it is wise to do so at that time.
For
More Information
For
a basic guide to understanding bonds, read the information
prepared by the National Association of Securities
Dealers. Go to: www.nasd.com
and click first on "Investor Information" (at the
top of the home page) and then on "Bond Investing"
on the left. This site also has easy-to-understand,
impartial material on stocks, various approaches to
investing and personal finance topics.
Good
Luck!
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