Bond

1. Definition

A Bond is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). * Think of it as an I.O.U. between the lender and borrower that includes the details of the loan and its payments.

2. Key Components

1. Face Value (Par Value): The amount of money the bond will be worth at maturity. This is the principal amount effectively "lent" to the issuer.
2. Coupon Rate: The interest rate the issuer pays to the bondholder based on the face value. (Usually paid semi-annually).
3. Maturity Date: The date on which the bond will be paid back to the investor.

3. Stocks vs. Bonds

Feature	Stocks (Equity)	Bonds (Debt)
Ownership	You own a piece of the company.	You are a lender to the company.
Return	Dividends (variable) & Capital Gains.	Interest (fixed) & Principal.
Risk	High.	Lower (Higher claim on assets).
Bankruptcy	Paid last.	Paid before stockholders.

4. The Golden Rule: Price vs. Yield

"Bond prices and interest rates move in opposite directions." * When new bonds are issued with higher interest rates, existing bonds with lower rates become less attractive. To sell these older bonds, their price must be lowered (discounted) to match the new yield.

5. Why Invest?

1. Capital Preservation: High-quality bonds (like U.S. Treasuries) are a safe haven during stock market crashes.
2. Predictable Income: They provide a steady stream of cash flow, making them essential for retirees and pension funds.