A bond is a debt security issued by a government, corporation, or financial institution, representing the issuer's obligation to repay the principal amount at maturity and to make periodic interest (coupon) payments to investors.
Bonds provide a source of long-term financing for issuers and stable income for investors.
How it works
1
The issuer raises financing by issuing bonds.
2
Investors purchase the bond and provide funds to the issuer.
3
The issuer pays periodic interest (coupons) according to the agreed schedule.
4
At maturity, the principal (face value) is repaid.
Key terms
- Face value (principal) — the amount to be repaid at maturity.
- Coupon — interest payment made to investors.
- Maturity — the date on which the principal is repaid.
- Issuer — the entity issuing the bond.
