What Is a Bond?
A bond is a loan. When you buy a bond, you are lending money to the bond's issuer. Generally, the loan is for a fixed amount of money, the principal -- or face amount -- for a fixed length of time. At the end of that time, the bond is mature; the borrower pays off the loan by paying off the face amount. Most often, the loan is at a fixed rate of interest, the interest being due on a fixed schedule during the life of the loan (e.g., quarterly or yearly).Technically, not all fixed income instruments are bonds. However, in this post I am using the term bond loosely to include not just bonds, but other fixed income instruments such as bills, notes and certificates of deposit as well.
