How do these prize bonds work? What are they and how does it relate with the government or the economy of a country?

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How do these prize bonds work? What are they and how does it relate with the government or the economy of a country?

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Governments regularly issue savings bonds. You can buy savings bonds from the government for a certain amount of money, then you wait for the bond to “mature”. After it matures, you can turn it in for a slightly larger amount of money. This is essentially a way for the government to borrow money, with the effective interest rate on the loan given by the difference between how much you pay to buy the bond and how much you get when you turn it in.

Prize bonds are a similar idea, except the amount of money you can get from buying the bond is random. It will probably be zero, but it may be some large amount. When you average over all the possibilities, they pay out something close to what a savings bond does. Most people prefer savings bonds because they like to know exactly what they’ll get from their investments. Other people might prefer prize bonds because they’re excited by the possibility of suddenly getting a lot of money. These would be the same people who play the lottery. Ultimately, prize bonds are best thought of as a hybrid between savings bonds and lotteries.