The Basics of Bonds and How They Work: A Fun Dive into Fixed Income Investments

Various types of bonds, including Treasury bonds, municipal bonds, government bonds, and corporate bonds, with financial elements like U.S. dollar bills.

Basics of Bonds

Considered as the pillar of the financial industry, bonds are a main instrument used by investors looking for fixed income assets. A bond is essentially a loan given by an investor to a borrower usually a company or government.

The investor gets coupon payments—periodic interest payments—and the repayment of the principal amount upon bond maturity in exchange for lending their capital. See bonds as a huge pizza party to help you grasp them more readily. Every slice of pizza is a bond; when you invest in a slice, you are effectively lending money to the borrower—that friend—to purchase the ingredients. They pledge to cut a portion back to you over time, finally returning your original slice—or in other terms, your primary amount—in reward for your kindness.

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