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What is a bond?

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Quick answer

A bond is a loan you give to a government or company in exchange for regular interest payments and the return of your money on a set date. Bonds are generally lower-risk than stocks. You lend money; the issuer pays periodic interest (the 'coupon').

Key things to understand

  1. You lend money; the issuer pays periodic interest (the 'coupon').
  2. At maturity, the issuer repays the original amount (the 'face value').
  3. Government bonds are typically safer; company bonds pay more but carry more risk.
  4. Bond prices fall when interest rates rise, and vice versa.

People also ask

How is a bond different from a stock?
A bond is a loan that pays interest; a stock is ownership in a company. Bonds are generally lower-risk and lower-return.
Why do bond prices fall when interest rates rise?
New bonds pay more, so existing lower-rate bonds become less attractive and their price drops.
Are bonds safe?
Government bonds are among the safest investments; corporate bonds vary with the issuer's financial health.