What are Bonds(i know it comes under long term investment?but what is it exactly ..have some idea but not sure

Question

what are Bonds(i know it comes under long term investment?but what is it exactly..have some idea but not sure. who will give bonds.

thank you.

Answer 1

A bond is a debt instrument.  It is basically a loan to the body issuing the bond.  Bonds can be issued by corporations (companies) Governments (in the US they are called "Treasuries" and in the UK they are called "Gilts,") and individuals (Bowie bonds secure by revenues from his catalogue of music.  They have an interest rate and interest is paid quarterly/semi-anually/annually.  The price of the bond reflects the credit worthiness of the company/government/individual.  because the interest rate is fixed the price of the bond varies.  You can aslo have "zero" coupon bonds where there is no interest paid but the bond is issued/priced at a very low level.  The vast majority of bonds are "eurobonds" which are denominated in US dollars.  Interest on US dollar denominated bonds is calculated on the basis of a 360 day year and interest on bonds denominated in Sterling is calculated onthe basis of a 3645 day year.  There are also several companies that will rate bonds - Standar & Poors Moodys etc.  the ratings are A or AAA or A+ etc.  It is interesting to know that a triple A rating is defined by one agency as a company that "has a good ability to maek repayments of interest and principal."

Answer 2

Bonds are debt...stocks are equity. A corporation issues a bond and investors buy them. Almost ALL bonds (i know, except zero coupons) pay what is called a "coupon payment." These are typically paid semi annually or annually and vary depending on intereste rates and the company's credit quality (called a rating). Bonds can be short or long term...but are most common as long term. (The government also issues bonds..called treasuries)

It is basically just a way for a company or government to get the money they need now and then they repay is at a stated date in the future.

Answer 3

To be too simplistic: Buy bond = Lend money. When the government needs money, they will try to borrow money. But because the government financing needs are so huge, no bank can possible afford to lend. So the government goes to the public (bond market) and imagine they want to borrow $1 billion. They would issue 10 million bonds each worth $100 so that everybody can lend/ buy bonds according to how much they can afford.

Similarily, companies (especially big ones with big financing needs) can raise money either by selling stocks (people investing) or selling bonds (people lend) (and sometimes they simply go to banks when the sums are not big or if they need money only for very short time). So governments, agencies, municipalities, corporations issue bonds and sell them to the public with different maturities and coupon rates.

Maturity refers to how many months or years (from 3 months to 20 years) the bond is outstanding when the government/ corporation pays you back the principle (the original $100). The coupon are interests paid to you for the loan, it may be paid every 3 months, 6 months, 1 year ... or never (as in 3 month government treasuries).

The other benefit to bonds, as opposed to borrowing from a bank, is that it reduces risk and increase liquidity, because imagine you buy a 20-years bond and after 1 year you no longer interested in holding it. You can be able to sell it in the (secondary) market without the company/government having to pay you back before maturity.

Answer 4

Here is a definition I got from http://www.gnutrade.com

A bond (also known as a debt security) is basically a loan agreement. An organisation which needs money (e.g. a company or government) issues a bond, and whoever buys the bond is essentially lending money to the organisation.

The bond market is the 'mechanism' that enables organisations like companies or governments to borrow the money for their business needs (eg, projects, and expansions).

The 'seller' or 'issuer' of the bond (ie, the organisation borrowing money) agrees to repay the loan amount after a specified time and with interest (known as a coupon). The prices of bonds depend on many factors, including interest rates.

Bond prices generally go up when interest rates go down, and visa versa, and there are many people who seek to profit from changes in interest rates by trading bonds.

Some bonds can last for 10, 20, 30 years or more. I suggest you go to this page on gnuTrade for more info on different types of bond that are commonly traded: http://www.gnutrade.com/learn_to_trade_m...

gnuTrade also lets you have a go at bond trading on real live prices with play money, so you can get a feel for how the markets work

Answer 5

Bond is a loan. So bond investors lend their money to bond issuers and will get coupons every month plus the principal at the end of the period.