Bond

Definition

An investment that represents a loan to a government or company. The issuer promises to repay the principal at maturity and usually pays interest along the way.

A bond sets out when payments are due and when the amount borrowed is scheduled to be repaid. Many bonds can be sold before maturity at a market price that changes with interest rates and the issuer’s financial health. Bondholders depend on the issuer to make its promised payments.

Example

You buy a newly issued $1,000 bond with a 4% annual coupon. The issuer promises $40 in annual interest and repayment of the $1,000 at maturity.