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    what is a bond?

    +1  Views: 575 Answers: 1 Posted: 10 years ago

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    A loan from the bank is predicated upon your proving your financial worth as well as requiring, you the borrower, to adhere to the covenants of the banks and other bank policies. You're required to pay the interest periodically and the original amount borrowed is the be returned at some point in time.


    A stock is an ownership paper given to you for owning a piece of company.  The value of the stock can go up or down depending on how well the company does.  If you own Apple, it's gone up from $78 to nearly $400 in a little over 2 years.  If you own Worldcom, you went from $80 to nearly zero in  a span of a couple of years.  You can own stock for growth (more aggressive) or for income (conservative).  There's no need to pay back the original amount collected at the beginning (IPO or Initial Public Offering).  The company needs to provide financial statements to the investors periodically.


    A bond is neither a loan from a bank nor an ownership paper from the company.  It's like borrowing money from some entity (you) but will not  have to adhere to all the covenants of the banks.  It does pay you money on a yearly, semi annually or quarterly basis to you for lending them the money.  Companies like to sell bonds to investors since they're not tightly scrutunized as to how to spend their money.  The banks may require that their customers not use any of their loans, for example, to do business in communist countries.  This would hamper a company such as Coca Cola to try to open a plant in eastern Europe.  A Bond, finally, has a specified future date to pay back the entire sum to the investor.  It's called "maturity."



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