What Is a Bond?
A bond is a loan you give to a company or a government. They promise to pay you interest along the way and give your money back on a set date.
How a bond works
You buy a 10-year bond for $1,000 that pays 4% a year. You get $40 every year for 10 years. At the end, you get your $1,000 back. The end date is called maturity.
Bonds vs stocks
A stock makes you an owner. A bond makes you a lender. Owners can win big if the company grows, but can lose everything. Lenders get a fixed payment and are paid before owners if the company fails. So bonds usually swing less but grow less.
Why bond prices move
If interest rates rise to 5%, nobody wants your old 4% bond at full price, so its price falls. If rates drop, your 4% bond becomes more attractive, and its price rises. Bond prices and rates move in opposite directions.
Who issues bonds
Governments borrow through bonds, like US Treasury bills. Companies issue corporate bonds. Riskier borrowers must pay higher interest. The return you get is called the bond yield.
See it in real companies
Open a company to see what it sells and how it makes money.