What’s a Bond?

A bond is a debt investment, where the investors lend money to an entity, typically corporate or government. In return, the bond issuer will pay the bondholder interest known as coupon (A variable or fixed interest rate which the Issuer pays for borrowing the funds for a defined period of time). On maturity date, the date of which repayment was agreed on; the investor will get back the borrowed amount, also known as face value, par value or principal amount.

For example, John purchases a bond from a corporation of $1 million at a coupon rate of 2.8% per annum that matures on 1st January 2020. John is now the bondholder, and receives 2.8% of the face value from the corporation every year until maturity. At maturity, the corporation will pay John back the face value.