Bonds: When You Lend Money
A bond is a security that represents a commitment by the issuer toward the holder.
The issuer can be a government or a company. The terms set the payments and the repayment. There is a risk the issuer will not meet its obligations, and the bond's market price can also change. With a fixed-rate bond, a rise in market interest rates tends to lower the price.
Selling a bond before maturity can yield a different amount than what was paid when buying it.
Compare owning part of a company via a share with a company's debt via a bond.
Investor.gov · Bonds ↗Check your understanding
A bondholder is usually…
- a lender to the issuer
- the owner of the whole company
- receiving money without risk
Answer and explanation
a lender to the issuer. A bond represents the issuer's debt.
Can a bond's price fall before maturity?
- No
- Yes
- Only stocks fall
Answer and explanation
Yes. A bond's price changes, among other things, with interest rates and the issuer's risk.
Continue learning
Compound Interest: Time Makes a Difference — Compound interest is earning interest on interest that has already been added.
Fees: Small Numbers Add Up — Commissions and management fees are costs that reduce the investor's outcome.