Bonds are part of the family of investments known as fixed-income securities. These securities are debt obligations, meaning one party is borrowing money from another party who expects to be paid back the principal (the initial amount borrowed) plus interest.

Investors (the holders of the bond) can make money on bonds in two ways.

First, as we already mentioned, the holder receives interest payments - known as the coupon - throughout the life of a bond. For instance, if you bought a 10-year bond with a coupon rate of 8%, the issuer would send you a coupon (interest) payment of $80 every year. (Most bonds pay twice a year so, technically, you would receive two checks for $40 each.)

Second, bonds fluctuate in price just like any security. This price fluctuation depends on a number of factors, the most important of which is the interest rate in the market. Some investors attempt to make money from the changing price of a bond by guessing where interest rates will go.

If you'd like to learn more about bonds, see the Bond Basics Tutorial.

  1. If I buy a $1,000 bond with a coupon of 10% and a maturity in 10 years, will I receive ...

    Simply put: yes, you will. The beauty of a fixed-income security is that the investor can expect to receive a certain amount ... Read Answer >>
  2. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ... Read Answer >>
  3. Do long-term bonds have a greater interest rate risk than short-term bonds?

    The answer to this question lies in the fixed income nature of bonds and debentures, often referred to together simply as ... Read Answer >>
  4. How does a bond's coupon interest rate affect its price?

    Find out why the difference between the coupon interest rate on a bond and prevailing market interest rates has a large impact ... Read Answer >>
  5. What are the key factors that will cause a bond to trade as a premium bond?

    Learn about the primary factor that can cause bonds to trade at a premium, including how national interest rates affect bond ... Read Answer >>
  6. How does the money from the interest on my bond get to me?

    When you buy a regular coupon bond, you are entitled to a coupon, which is typically paid at regular intervals, and the face ... Read Answer >>
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