A bond is a written promise by a corporation to pay back the principal on a loan, plus interest. When you
“buy” a bond, you are really lending money to the corporation and receiving in exchange a piece of paper (the bond) containing a promise to pay back the loan plus interest. The bond is, in effect, a professional form of what is commonly referred to as an “IOU.”
“buy” a bond, you are really lending money to the corporation and receiving in exchange a piece of paper (the bond) containing a promise to pay back the loan plus interest. The bond is, in effect, a professional form of what is commonly referred to as an “IOU.”
A bond is based upon a contract called an indenture, which speciļ¬es the various characteristics of the
bond. Such characteristics include the maturity date, rate of interest, and call provisions.
Several kinds of bonds are common today. Secured bonds are backed by collateral such as real estate or other investments, while unsecured bonds are not. A typical example of unsecured high-risk bonds is junk bonds. These pay a high rate of interest due to their high risk.