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Investment term of the day: bond

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A bond is like an IOU. When a company (or indeed, government) wants to raise funds, it may well look to issue bonds. Investors buy the bonds (i.e. lend money), and in return, receive a note binding the company to a fixed agreement.

Under this agreement, the company is obliged to pay regular interest at a predetermined rate (called the coupon) to each of the bondholders (lenders) over a fixed period, after which, the initial sum of money (called the principal) is repaid.

Bonds are often called debt investment, and are often regarded as more secure than equity investment.

Investopedia definition.

Wikipedia page.

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