Bonds are a type of security sold by governments and corporations to raise money from investors. When an investor buys a bond, they are essentially lending money to the issuer for a set period of time, in exchange for regular interest payments. The issuer is then obligated to pay back the face value of the loan on a specific date, known as the bonds maturity date. Bonds can be issued by companies or governments and generally pay a stated interest rate. The market value of a bond changes over time as it becomes more or less attractive to potential buyers. Bonds that are higher-quality, meaning they are more likely to be paid on time, generally offer lower interest rates. Bonds that have shorter maturities tend to offer lower interest rates. There are different types of bonds, including:
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Corporate Bonds: These are bonds issued by corporations to raise money for various purposes, such as expanding their business or financing new projects.
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Government Bonds: These are bonds issued by governments to finance their operations or fund public projects.
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Municipal Bonds: These are bonds issued by states, cities, counties, and other government entities to finance public projects such as schools, highways, and airports.
Bonds are often considered lower-risk investments than equities, making them a key component of a well-rounded investment portfolio. They can help hedge the risk of more volatile investments like stocks, and they can provide a steady stream of income during retirement years while preserving capital.
