Introduction to Bonds

Bonds are fixed-income debt securities that represent a loan made by an investor to a borrower.

Bonds are financial instruments that governments and corporations issue to raise capital from investors, promising to return the principal amount to the bondholder on a predetermined maturity date.

The income bondholders get periodically, known as the "coupon," sweetens the transaction.

Take Lake View Corporation as an example.

Lake View is trying to build a new factory. They need to borrow one million dollars but are unable to secure a bank loan. Instead, it raises the funds by offering investors bonds valued at one million dollars.

Based on the bond's conditions, Lake View agrees to give the bondholders five percent interest on a semiannual basis for five years. Since the face value of each bond is one thousand dollars, it is selling a total of one thousand bonds.

Bonds can be a reliable source of income and are chosen by investors looking for stability and a fixed return.