What is a bond
A bond is a long-term investment that enables an investor to loan money to a corporate or governmental entity. This entity will borrow the funds for a specified period of time, set at a predetermined interest rate. A bond is therefore an agreement that is entered into by an investor, with a company or governmental organization with an aim to make a return on an investment.
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Bonds explained
Bonds are a popular investment choice at particular periods of time on the market. For example, when we are experiencing a bear market, meaning that the price of securities is generally falling, investors are more attracted to bonds due to their safety and stability.
In today’s complex economic circumstances, many investors choose to include bonds within their investment portfolio. Bonds are essentially borrowed investments whereby an investor lends money to an entity for a defined period of time.
When businesses invest in bonds, they are augmenting their chances of expanding, as they are borrowing money from individual investors, pension funds or mutual funds. The company issues bonds at various interest rates, and sells them to the public.
Bonds are commonly referred to as fixed-income securities. Bond maturity periods range from a 90-day treasury bill to a 30-year government bond. Corporate bonds typically range from three to ten years in duration.
The purpose of a bond is for the investor to earn interest during or after its maturity period is reached. They are primarily used by companies, municipalities, states and foreign governments to finance a variety of projects and activities. Bonds come in three main categories: bills, notes and bonds. Bills are debt securities that mature in less than a year; notes mature in one – ten years, whilst bonds mature after more than ten years. The amount of interest a bondholder earns depends on the strength of the corporation that issued the bond.
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