What is a simple bond?

A bond is not a security of ownership but a debt security. A bond represents a portion of a company's debt that the company commits to repay.

When a company issues a bond, it chooses to turn to the financial markets for financing, rather than a bank, as the ratio in terms of interest rate and maturity is often more favorable.

Each bond entitles the holder to a coupon paid periodically or at maturity, depending on the bond's face value and the associated interest rate.

For fixed-rate bonds, the coupon depends on the face value at issuance; their return does not change over time.

Bonds are financial securities with a limited lifespan.

Each bond has a specific maturity date. When the maturity date ends, the bond is said to have reached "maturity," and the company must repay its face value in full.

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To learn more

Read our article: Investing in bonds: characteristics, valuation and profitability