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Basically, a bond is really a fancy IOU. Businesses and governments problem bonds to fund their day-to-day operations or to finance particular projects. Whenever you purchase a bond, you're loaning your cash towards the issuer – be it Common Electric or Uncle Sam – to get a particular time period.

In return, you get interest around the loan, and also you get the whole loan quantity paid back either on a particular date (referred to as the bond's maturity date) or at a future date from the issuer's option. The length of time for you to maturity is known as the bond's term.

Bond investors possess a language all their very own. A bond's worth when it is issued is referred to as its "par worth," and its interest payment is referred to as its "coupon." For instance, a $1,000 bond paying 7% a year features a $70 coupon. Expressed an additional way, its "coupon rate" is 7%.

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