Overview of a Lottery Bond

A lottery bond is a type of bond that is issued by a federal government. With this type of bond, bondholders have the opportunity to get a higher rate of interest than other bondholders in the same class. Here are the basics of the lottery bond and how it works.

Lottery Bonds

Lottery bonds are referred to as such because investors are taking a chance that they will be able to win a higher return than what they are promised. This type of bond comes with a minimum guaranteed rate of interest. Every investor that purchases one of these bonds is going to be paid that amount of interest regardless of what happens. However, they also have the opportunity to be chosen to receive a higher rate of interest. A certain number of bondholders are going to be chosen at random to get a larger return on their investment.

How It Works

Initially, the bond works just like any other type of government bond. Investors are going to loan a certain amount of money to the government and the government promises to pay them a specified amount of interest. There will be a face value to the bond and a coupon rate. With these types of bonds, you are also going to get a serial number. Every issue of these types of bonds is going to be different. However, the basic idea is that the government is going to choose serial numbers at random from the bonds that have been issued. The individuals that are chosen are going to take their bonds back to the government and the government will pay them in amount that is above the face value of the bond. This means that the individuals that are chosen are going to be able to make a bigger return than the rest of the people that own the bonds.

Why They Are Issued

These types of bonds are issued in order to raise money for certain projects for the government. The government issues these bonds as a way to increase interest in dealing with the government. Just as the lottery is appealing to individuals, these types of bonds are appealing because they present an opportunity to win a better return on your investment. With the promise of a potentially higher rate of return, investors will seek out this type of bond as a way to help themselves. They are attractive because you know that you are going to release it something out of them and your return could be better than average.

Where They Have Been Issued

This type of bond has been issued by a number of different governments over the years. Most of the countries in the European Union have issued lottery bonds at some point. For example, France, Belgium, and the United Kingdom have all issued these types of bonds in the past. Periodically, the European nations will issue them for various reasons.

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