Bond

Definition

A bond is a fixed-income security where the issuer borrows capital from the investor and agrees to pay back with interest over a specified period. It is commonly used by corporations and governments as a way to finance long-term projects.

5 Must Know Facts For Your Next Test

1. Bonds have a face value which is the amount paid back at maturity.
2. The coupon rate is the interest rate paid by the bond issuer on the bond's face value.
3. Bonds can be issued at par, premium, or discount based on market conditions.
4. Bond prices are inversely related to interest rates; when rates rise, bond prices fall.
5. The yield to maturity (YTM) represents the total return anticipated on a bond if it is held until it matures.

Review Questions

Related terms

Coupon Rate: The annual interest rate paid on a bond's face value.

Yield to Maturity (YTM): The total return expected on a bond if held until it matures.

Face Value:

The amount of money that will be returned to the bondholder at maturity.