What is a bond explained simply?

A bond is simply a loan taken out by a company. Instead of going to a bank, the company gets the money from investors who buy its bonds. The company pays the interest at predetermined intervals (usually annually or semiannually) and returns the principal on the maturity date, ending the loan.

What is the best explanation of a bond?

A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.

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How does a bond work and what does it mean?

They are essentially loan agreements between the bond issuer and an investor, in which the bond issuer is obligated to pay a specified amount of money at specified future dates. How do Bonds work?

Why are bond yields so tricky to understand?

Bond yields are a tricky concept for most investors to grasp initially because they are calculated based on a few moving parts and the mainstream media seems to roll back and forth between discussing bond yields and bond prices. Use Up/Down Arrow keys to increase or decrease volume.

What happens to the principal when you buy a bond?

When an investor purchases a bond, they are “loaning” that money (called the principal) to the bond issuer, which is usually raising money for some project. When the bond matures, the issuer repays the principal to the investor. In most cases, the investor will receive regular interest payments from the issuer until the bond matures.

What happens when you buy a government bond?

An investor who buys a government bond is lending the government money. If an investor buys a corporate bond, the investor is lending the corporation money. Like a loan, a bond pays interest periodically and repays the principal at a stated time, known as maturity.