Bond
A loan to an issuer that pays interest and returns principal at maturity.
What is Bond?
A debt security. The investor lends the issuer principal (par value), receives periodic coupon interest, and gets par back at maturity. Bondholders are creditors, not owners - they rank ahead of all equity but have no upside beyond the promised payments.
Bond: a worked example
A $1,000 par bond with a 5% coupon pays $50 a year and returns $1,000 at maturity.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.
High-Yield (Junk) Bond
A below-investment-grade bond paying more to compensate for default risk.