Bond
A bond is a fixed-income debt security where the issuer owes the holder a debt and pays interest (coupon) plus principal at maturity.
š¬ Video Explanation
Exam Tip
Inverse relationship: Interest rates UP = Bond prices DOWN
What is a Bond?
A bond is essentially an IOU. When you buy a bond, you're lending money to the issuer (government, corporation, or municipality) in exchange for regular interest payments and the return of principal at maturity.
Key Bond Terms
| Term | Definition |
|---|---|
| Par Value (Face Value) | Amount paid at maturity (usually $1,000) |
| Coupon Rate | Annual interest rate based on par value |
| Maturity Date | When principal is repaid |
| Yield | Actual return based on purchase price |
Types of Bonds
- Corporate Bonds - Issued by companies
- Municipal Bonds - Issued by state/local governments (often tax-exempt)
- Treasury Bonds - Issued by U.S. government
- Agency Bonds - Issued by government-sponsored entities
Bond Price and Interest Rate Relationship
Bond prices and interest rates move in opposite directions. When rates rise, bond prices fall. When rates fall, bond prices rise.
Study This Term In
Related Terms
Municipal Bond
A municipal bond (muni) is a debt security issued by a state, city, or county to finance public projects, with interest typically exempt from federal income tax.
Yield
Yield is the income return on an investment, expressed as a percentage, including interest or dividends received.
Treasury Securities
Treasury securities are debt instruments issued by the U.S. government to finance operations, considered the safest investments due to being backed by the full faith and credit of the U.S.
10 free AI interactions per day
Stay Updated
Get free exam tips and study guides delivered to your inbox.