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Bond
Definition
A bond is a fixed-income investment where an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period at a fixed interest rate.
Explanation
Bonds are debt securities that pay regular interest (coupon) payments and return the face value at maturity. Government bonds are considered low-risk, while corporate bonds carry higher risk and offer higher yields. Bond prices move inversely to interest rates — when rates rise, bond prices fall.
Bonds are a key component of diversified portfolios, providing income and stability. The bond market is larger than the stock market.
Example
A $1,000 bond with a 5% coupon pays $50 per year in interest. If held to maturity, the investor receives the full $1,000 back.