What Are Bonds?
Bonds are loans you make to governments or corporations. In return, they promise to pay you interest and return your principal at maturity.
The Basics
When you buy a bond, you're lending money to the issuer (like the U.S. government or Apple). The issuer pays you interest (called the coupon) at regular intervals, and at the end of the bond's term (maturity), they return your original investment (the principal).
Why Bonds Exist
Governments issue bonds to fund infrastructure, schools, and public services. Corporations issue bonds to raise capital for expansion or operations. For investors, bonds provide predictable income and are generally less risky than stocks.
Key Bond Terms
Face Value (Par): The amount the bond will be worth at maturity, typically $1,000. Coupon Rate: The annual interest rate paid to bondholders. Maturity Date: When the issuer repays the principal. Yield: The effective return you earn, which can differ from the coupon rate.
- Bonds are loans to governments or corporations that pay regular interest
- Face value is what you get back at maturity; coupon is the annual interest
- Bonds offer predictable income and are typically less volatile than stocks
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