What is a bond?

In investments what is a bond?

A bond is a contract between someone who wants to borrow money (the issuer) and someone who is willing to lend money (the purchaser).

The issuer is usually a company or the government. US bonds are issued by the US government. Municipal bonds are issued by a state or local government. Corporate bonds are issued by companies.

The contract outlines how it will be paid back. In the US, there are usually two interest payments per year until the whole thing becomes due. For example, suppose a company issues a $10,000,000 bond at 9% per year for ten years. It will agree to make two payments per year at half the "coupon rate" of 9%. That is, every six months it pays half a year's interest of $450,000. At the end of ten years, it pays back the principal (the $10,000,000) plus the last interest payment of $450,000.

There is an active secondary market in bonds -- meaning that if I buy one from the company, I have a choice -- I can hold onto it and get the payments or I can sell it to someone else. He bases the price on the going rates -- which could go up or down from the 9%.

The reason the 9% is called a "coupon rate" is that in the old days, bonds would come attached with coupons that were cut off every six months. Purchasers would then take them to the bank and get cash for them. Everything is done electronically now.

That Is Something You Invest In.

is it James Bond

To put it simply, you are lending the bond issuer money. They pay you interest.

bond is a long-term obligation by the investor to the issue. you can compare it with deposit in the bank, the difference is that you can buy the bond at a discount or premium. If you are really interested it this security Frank Fabozzi.