A bond is a type of financial instrument that represents a loan made by an investor to a borrower. When an investor purchases a bond, they are essentially lending money to the issuer, which can be a corporation, government, or other entity. In return, the issuer agrees to pay the investor a fixed rate of interest over a specified period of time, known as the bond’s term. At the end of the term, the investor receives their original investment back, known as the bond’s principal.
Bonds are a popular investment choice for investors seeking a relatively low-risk source of income. Because the interest rate is fixed, investors can be confident in the return they will receive on their investment, making bonds a useful tool for managing risk in a diversified investment portfolio. Bonds can be bought and sold on the secondary market, and their value may fluctuate based on a variety of factors, including interest rates, the creditworthiness of the issuer, and market conditions.