What is a bond?
Bonds are an investment in which the bond holder extends a loan to the bond issuer for a specified period of time. In return for the loan, the issuer will make regular interest payments – known as coupons – to the holder of a bond. Bonds can be issued by governments as well as companies.
How do bonds work?
The terms of a bond are stated at outset, including:
Bond issuers with a high credit rating - and so considered less likely to default - will typically pay a lower coupon than other issuers with a lower credit rating, who compensate the bond holder for the higher level of risk through higher coupon payments.
What affects a bond’s value?
Bonds, like shares, can also be bought and sold on the secondary market, where the market value will fluctuate. The price of a bond on the secondary market is primarily influenced by:
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