A war bond is obligation security issued by the government to fund military tasks at the hour of war or struggle. As war bonds were offered at a rate of return below the market rate, the investment was accomplished by making emotional requests to patriotic citizens to loan the public authority cash. It is a loan to the government.
HISTORY OF WAR BOND
World War I:
Initially, these bonds were known as Defence Bonds and were first issued as Liberty Bonds in 1917 to finance the US government. By the sale of War Bonds, they raised a fund of 21.5 billion dollars for their war efforts.
World War II:
In 1941 after the Japanese assault on Pearl Harbour, the US entered the Second World War. Then they renamed Defence Bonds as War Bonds and earned about 180 billion dollars. They sold the bonds for 50% to 75% of their Face Value having denominations from $10 to $1000. Around 85 million Americans purchased war bonds during the conflict.
CURRENT SCENARIO:
The government uses these bonds to mitigate inflation. By issuing the bonds they try to reduce the supply of money in the market and hence reduce inflation. To finance Military Operations the government prints more money which enhances the supply of money in the market which leads to inflationary pressure. They issue these bonds to reduce the amount of money in the economy and collect the capital through bonds for military spending.
ADVANTAGES OF WAR BOND
It was purchased for a price that was below their Face Value.
It was guaranteed by the US government.
Investors experienced a sense of pride and patriotism by helping their nation during wartime.
DISADVANTAGES OF WAR BOND
It was paid at a lower rate of interest.
It did not pay interest payments throughout the life of bonds.
It carried the risk of a loss if sold before maturity.
WORKING OF WAR BOND
They are the same as other bonds but have a lower interest rate with recurring payments of interest for a predetermined period. The Bond reaches maturity when the time gets to its end and the bondholder receives back the principal amount that they originally paid for the bond. They are like Zero-Coupon Bonds.
CONCLUSION
It is one of the good ways to save money if we can afford to put them away for years like decades as they build interest. It will be steady interest earners and a person can pleasantly surprise when they redeem them at the amount they are worth.
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