![]() When you buy bonds, you’ll know exactly what interest and lump sum you’ll earn, right from the word go. Now, bonds are called “fixed income” because the income you earn from them (either interest and / or the lump-sum) is fixed. And so is the lump sum payment if that’s promised.Ĭontrary to popular belief, stocks actually have no obligation to pay you anything – not even dividends. In other words, the interest payment is mandatory. ![]() So whether it’s a government bond / treasury bond, corporate bonds, municipal bond, etc. What makes bonds really unique is the fact that unlike stocks, bonds have a legal obligation to pay the bondholder all the promised payoffs. This is followed by the lump sum payment after a certain amount of time on the bond’s maturity date (the “Nth” year). In this example, the bond price is $1,125, and it pays $50 in interest (coupon payment) every year for a certain amount of time (“N years”). Lump-sum payment after a certain amount of time,Ī typical timeline looks something like this….The Bond Buyer’s Perspectiveīonds are “fixed income” securities that you can invest in to earn: Let’s start with the buyer’s perspective (likely you!). ![]() There’s the “buyers” (or investor) perspective, and then there’s the “sellers” (or issuer / borrowers) perspective. ![]() We’ll focus on those intricate differences throughout this article.īut the focal point is that, when looking at bonds, perspective is key. Like many other loans, but with small differences. Fundamentally, what is a bond? What is a bond?Ī bond is a fixed income security. If you’re new to the investing world, or you’re just getting started studying finance, then you’ve likely heard of “bonds”. ![]()
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