Bond

What is it? A type of security that pays a fixed amount of interest at a regular interval over a certain period of time. Bonds are essentially loans given to companies and government entities who promise to pay back the loan at a specified interest rate. Bonds are considered less risky investments than stocks. A bonds rating is like a persons credit rating. It gives you an idea of whether the company that issued the bond will be able to make its payments on the loan. As a bond holder, you receive that interest payment periodically.For example, suppose you own a municipal $1,000 bond that pays 7% interest over 10 years. In this case, assuming you bought the bond at its par value of $1,000 and held it for 10 years, you would receive $70 a year (7% of $1,000) for 10 years. At the end of the 10 years, you would have received $700 in interest ($70 x 10 years), and you would also get the $1,000 back.

Added By: Caroline

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