Can someone explain what a bond is?

by hardy_langosh , in category: General Finance , 3 years ago

I was always under the impression that a bond was certificate proving debt but someone said that it has more to do with loans, not debts and now I am confused and don't fully understand what it is. Can someone explain to me in the simplest way possible so I get an idea of what a bond is?

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5 answers


by jerald , 3 years ago
A bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). A bond could be thought of as an I.O.U. between the lender and borrower that includes the details of the loan and its payments. Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations. Owners of bonds are debtholders, or creditors, of the issuer. Bond details include the end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments made by the borrower.


In other words, it has to do with loans and debt. If someone holds a bond over someone else, they have debt to claim.

by eliza.stracke , 3 years ago

Jerald, you answered the question very well, thank you!

I also was unsure about bonds but that sums it up nicely. I'm also reading that they are a lower risk alternative to stocks with a guaranteed return. Is that so?

by wilton_von , 3 years ago

James Bond?

I am kidding. lol I honestly didn't have a solid understanding of it like yourself but the first response I find summarized it very well.


by reanna , 3 years ago

A bond is an owed debt that has yet to be paid. A bond holder therefor is a debt holder. Bonds can be held over individuals or companies, in some cases even governments.


by lavinia , 3 years ago

The simplest way to put it is that it is just a contracted debt one person or company has over another person or company. I believe it can be collected at any time or bartered as well depending on the situation.