What Is A Bond And How Do Bonds Work?
                     What Is A Bond And 
How Do Bonds Work?
What is a Bond?
 A bond is a secured investment as it is secured by 
collaterals. 
 In bonds, an asset is pledged as the security of 
lending so that if the issuer fails to pay the sum, 
the bondholders can sell the asset to discharge 
their debts.
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Types of Bonds 
 Actively managed bonds
 Passively managed bonds
 Open end bond
 Closed end bond
 Exchange traded funds
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How Do Bonds Work?
 The borrowing organization promises to pay the 
bond back at an agreed-upon date. Until then, the 
borrower makes interest payments to the 
bondholder. 
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How Do Bonds Work Cont.
 People who own bonds are also called creditors or 
debtholders. In the past, when people kept paper 
bonds, they would redeem the interest payments 
by clipping bond coupons. 
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Bond Elements
Issuer
 Any legal entity that seeks to raise money by 
selling securities such as bonds to fund new 
projects or investments, or to expand operations.
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Face value
 Also known as "par value," this is a static value 
assigned when a company brings stock or a bond to 
market. Unlike market value, face value doesn’t 
change. You’ll find the par value printed on the 
stock or bond certificate.
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Coupon rate
 The nominal or stated rate of interest on a fixed-
income security, like a bond. This is the annual 
interest rate paid by the bond issuer, based on the 
bond’s face value. These interest payments are 
usually made semiannually. 
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Maturity date
 The date on which you can expect to have your 
bond's principal repaid. It is possible to buy and sell 
a bond in the open market prior to its maturity 
date.
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Price
 As a bond's price fluctuates, the price is described 
relative to the original par value, or face value at 
which it was sold; the bond is referred to as trading 
above par value or below par value.
Source: www.thebalancemoney.com