Bond

Understand the idea

A bond’s contract determines how and when investors are paid, whether the issuer can repay early, and what protections or security exist. Bonds can trade after issuance, so their market price may differ from the amount originally paid. Creditworthiness, market interest rates, maturity and liquidity affect that price. Some bonds pay a fixed coupon; others have floating rates or no periodic coupon.

An example

Imagine a company issuing a five-year bond with principal of 10,000 and a fixed 6% annual coupon, payable once a year. Assuming it meets its obligations and no early repayment occurs, the investor receives 600 each year and the 10,000 principal at maturity. Selling the bond before maturity could produce a gain or loss depending on its market price.

Sources

• Investor.gov: corporate bonds

In the news

FosRich seeks time from bondholders as restructuring talks continue