Bonds definition

Bonds are a form of financial investment that involve lending money to an institution for a fixed period of time. They usually come in two varieties: corporate bonds and government bonds, depending on the type of institution you are lending to.

The bond will contain details of its interest rate (known as its coupon) from the outset. Since your initial investment is returned to you after the period of the bond expires (called the maturity date), this is the only profit that bonds pay.

Bond values are set at a par, typically either $100 or $1,000. This represents the face value, or amount that the initial investment will be worth at the bond’s maturity. Interest rates are a calculation of the credit status of the issuer and duration of the loan.

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