Bonds (3)

What is a bond?

A bond is basically an IOU, a debt instrument for a loan which is issued by a borrower to an investor who is the buyer of the bond and lender of the monies.

In return for the monies, the issuer agrees to pay regular interest to the bondholder for the term of the loan and the principal sum borrowed upon maturity.

However the buyer does not have to hold the bond until maturity;

he can sell it anytime before maturity if he wishes.

Thus bonds are tradable assets i.e. can be bought and sold among investors.