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A Bond is a debt investment
in which an investor loans money to an entity (corporate or governmental)
that borrows the funds for a defined period of time at a fixed interest
rate. Bonds are used by companies, municipalities, states and U.S. and
foreign governments to finance a variety of projects and activities.
The indebted entity (issuer)
issues a bond that states the interest rate (coupon) that will be paid and
when the loaned funds (bond principal) are to be returned (maturity date).
Note that bonds have a certain similarity with the Certificates of Deposit
(CDs) and savings accounts. Indeed, investors who deposit money in CDs (or
savings accounts) are lending money to banks. Banks pay the investor
interests over their deposits and later repay them the principal when CDs
reach maturity.
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