Like bonds and notes, the price and interest rate are determined at the auction. Treasury Inflation-Protected Securities (TIPS) are available both as medium and long-term securities. That means you will have also earned $1.66 for every $100 par value of your bond and $0.57 for every $100 par value of your note. If you still own the bond after 20 years or the note after seven years, you get back the face value of the security. The interest rate set at auction will never be less than 0.125%. Therefore, the price was lower than par value.ĭuring the life of the bond or note, you earn interest at the set rate on the par value of the bond or note. In both examples, the yield is higher than the interest rate. Here are examples from recent auctions: Type of security The "yield to maturity" is the annual rate of return on the security. The price depends on the yield to maturity and the interest rate. The price for a bond or a note may be the face value (also called par value) or may be more or less than the face value. The interest rate for a particular security is set at the auction. Notes are relatively short or medium-term securities that mature in 2, 3, 5, 7, or 10 years.īoth bonds and notes pay interest every six months. When you get $1,000 after 26 weeks, you have earned $0.73 in "interest."īonds are long-term securities that mature in 20 or 30 years.
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