The concept of a bond captures the idea of lending money and paying interest to someone else. It’s a financial asset that changes hands between parties in the financial market. Just like stocks, a bond can increase or decrease in value over time. As a result, a bond represents a form of debt. It’s a contract between two parties to ensure that both parties make their payments. The idea is that if one party defaults, the other side is liable to make the payments.
A bond is essentially a loan from a government or corporation to another party. The buyer receives regular interest payments from the issuer until the bond matures. The issuing entity pays the bondholder the principal at maturity. A bond fund is an investment vehicle that pools money from many investors and invests it in individual bonds in order to meet an investment objective. While most bonds pay regular interest until their maturity date, some are callable. That means that the issuer can repay the bond before its due date.
The principal of a bond is the amount borrowed by the issuer. The interest paid by the issuer to the lender is known as interest and is paid on a periodic basis. In most cases, interest is paid every six months, and is equal to 1% of the principal. The interest is paid as a percentage of the principal. In addition, the coupon is the annual interest rate that determines how much the issuing entity will pay to the bondholder.