The type of loan issued by companies/government
- When you buy a bond, you are loaning the issuing body that money
- You then get interest from the entity you brought the bond from, and then ultimately the bond is paid back
- Ex) Tesla is building a new plant ⇒ they fund the plant by issuing bonds, then you can buy those bonds, making you a bondholder ⇒ Tesla owes you money!
- The issuer promises to pay interest to the investors for the length of the loan
- Coupon (interest rate) is usually higher with longer term bonds
- When the bond reaches the date of maturity, the issuer repays the principal, the original amount of the loan.
- Less risk than stocks
- Lower risk ⇒ lower return (about 5% annual return)