Bond

A bond is a type of loan you give to an organization—like a company or government—in return for regular interest payments and the promise of getting your money back on a certain future date, known as the bond’s maturity. Bonds typically offer a fixed interest rate and come with a set lifespan, often five, ten, or twenty-five years.

Key features of a bond include:

• Issue Price: The amount the investor pays to buy the bond when it’s first sold.
• Face Value: The amount the issuer agrees to repay when the bond matures.
• Maturity: The date when the issuer returns your principal and stops making interest payments.
• Interest Rate (Coupon): The annual rate paid to the investor, set when the bond is issued.
• Yield: The total return you expect to earn from the bond, considering its price and future interest payments.

Governments sell treasury bonds to fund public projects. For example, the U.S. government’s three-month treasury bond sets a benchmark called the “risk-free rate.” Companies can also issue bonds, known as corporate bonds, to raise money for business needs. Corporate bonds usually offer higher interest rates than government bonds but also carry more risk.

Bonds are generally lower-risk than stocks, but inflation can reduce their value over time. Also, as bond prices go up, the yield (your effective return) goes down, which could make new bonds less appealing for investors. Remember that many bonds require you to wait months or years before you get your original investment back.