Question

What is a bond?

Short answer

Bonds are high-risk debt products that allow a company to raise money and meet its capital needs. It is a type of loan in which debtors borrow money from private investors for a set period of time.

Step-by-step solution

Concept introduction

Contracts between parties that can be traded and amended are known as financial instruments.

Step 2:

A bond is a contract between two people. Bonds are issued by enterprises or the government when they need to borrow money. The enterprises and the government issue bonds, which are purchased by investors. Bonds have a maturity date, and the issuer will pay the money back to the investor at a fixed rate of interest after that date. The face value of a bond, such as$\$100$or $\$1,000,$ can be increased or decreased depending on criteria such as the issuer's trustworthiness and the length of time for which the amount is issued.