While most stock market investors know what a stock is, some people are less sure about bonds, another purchase option. Let's take a closer look at this investment, also known as a fixed income security !
Understanding the stock market is essential for anyone who wants to grow their investments. Wondering what a bond is? A bond is simply a fraction of a debt. It allows an issuer to establish an acknowledgement of debt towards a purchaser.
Issuers of bonds are usually governments, communities and public or private companies. These securities allow them to raise funds. The amount initially loaned to the purchaser is the face value of the bond. The duration of this investment is limited. The date on which it must be fully repaid is called the maturity date. In exchange for his capital, the purchaser receives interest. This interest is also called a coupon. Its rate can be fixed or variable, if it depends on an external reference.
How is it paid ? There are several solutions. It can be given to the purchaser :
Bonds can be freely traded on the stock exchange. They therefore have a quotation price.
Like any investment in the stock market, bonds entail certain risks that you must take the time to evaluate when deciding to invest. What are these risks ?