Definition of Bond



A bond is a debt instrument that is issued by a borrower to raise finance. The bond can be corporate bonds or government-issued bonds. Corporate bonds are issued by companies to raise funds required by companies or expansion, whereas government bonds are issued by the government when it needs funds to accomplish a public project. Government bonds are backed by the government so there is no default risk, whereas corporate bonds bear a higher return than government bonds due to a default risk involved.

 


Each bond pays a coupon for example 6% of par value that usually is $1000 until the maturity date. The bonds can be short-term and long-term depending on the date of maturity. 


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