What is a bond?

Ivan Kochura
Ivan Kochura
March 20, 2013
What is a bond?

The calculation of the economy is a very serious and responsible matter. Wrong approach or wrong solutions to economic problems lead to complete bankruptcy. In this article we will consider one of the options for the so-called lending, which may be the basis for a particular activity or business.

Concept of bond

Answering the question what a bond is, you can easily confuse it with shares. But there are differences between stocks and bonds, and they are quite substantial. A bond is a security drawn up on the basis of a contract, on the basis of which the owner of this security can receive from the issuer at the end of the term its nominal value in cash or another property unit with a percentage of the value.

What distinguishes it from a stock is that it does not give any right to co-ownership of anything and the profit from a bond is less than from a stock. But the purchase of bonds is considered more reliable, because with unsuccessful actions, the action may even bring nothing at all.Anyone can buy bonds - from ordinary people to large organizations.

Back in Soviet times, bonds were distributed, they could even give out salaries. Thus, the state, one might say, borrowed money from the population. It happens today. To borrow amounts and sell bonds, large or small enterprises can develop their business. Understanding how a stock differs from a bond, it is possible to decide exactly which one of them is worth buying in order to end up with nothing and profit to make your investments.

Types of bonds

There is some classification of bonds. They are: fixed-rate bonds, floating-rate bonds, corporate bonds, municipal and government bonds. The difference between them lies in some of their principles. For example, a bond with a fixed rate implies that the owner will receive a certain amount that does not change over the entire term. A floating rate means that the amount may vary due to various economic factors.

Corporate bonds are distinguished by the fact that they are issued to owners-shareholders. This species is more risky and unstable. There are also municipal and state bonds that are issued by local or state authorities. That is, the already mentioned above loan of money by the people is implied.

Having learned the relevant principles, we can draw the following conclusions that the definition of “bond” is not difficult to explain. Just enough to carefully understand the features. Today, many people buy bonds, thereby striving to earn money and helping one or another structure to develop its field of activity. Bonds are the main instrument for the temporary redistribution of funds.

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