What are bonds and how do they work?

Bonds are debt securities that are issued by corporations and governments to raise funds. The issuer borrows money from investors and promises to repay the debt over a certain period of time, usually with interest. Bonds are typically issued in denominations of $1,000 or more. Interest on bonds is paid semiannually. When you buy a bond, you become a creditor of the issuer. The issuer uses the money it raises from the sale of bonds to finance its operations or capital expenditures. For example, a company might issue bonds to finance the construction of a new factory. The riskiness of a bond is measured by its credit rating. The higher the credit rating, the less risky the bond is considered to be. Bonds are an important part of the capital markets and are used by investors to generate income or to preserve capital. When interest rates rise, the prices of bonds fall, and vice versa. Bonds are traded in the secondary market, which is where investors buy and sell bonds that have already been issued. The prices of bonds in the secondary market are determined by supply and demand.