A bond is a debt security, similar to an I.O.U. When you purchase a bond, you are lending money to some entity. These entities may include corporations, the U.S. government, local municipalities, federal agencies, and foreign governments.
The issuer of the bond agrees to pay you a specified rate of interest (e.g., 6%) for a predetermined length of time (e.g., 10 years). The issuer will also repay the face value of the bond (the principal) when it “matures,” or comes due.
A corporation may use these funds to build a new plant or expand into new markets, while governments may use these funds to build roads, bridges, schools, and office buildings or to fund other spending priorities.
For further information about bonds, visit the eXtension "Investing for Your Future" lesson at www.extension.org/pages/Investing_for_Your_Future.
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