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Definition of 'Bond'

A bond is a debt security that represents a loan made by an investor to a borrower, typically a corporation or government entity. When an investor buys a bond, they are effectively lending money to the issuer of the bond, and the issuer promises to pay the investor back with interest over a set period of time.

Bonds typically have a fixed interest rate, called the coupon rate, that is paid out to the investor periodically over the life of the bond. At the end of the bond's term, the investor receives the full amount of the principal investment back. Bonds can have different maturity periods, ranging from short-term bonds with maturities of a few months to long-term bonds with maturities of 30 years or more.

Bonds can be issued by governments, corporations, municipalities, and other organizations to raise capital. They are a popular investment choice for investors seeking a predictable stream of income and more stable returns than stocks, although the value of bonds can still fluctuate based on changes in interest rates and other factors.

The creditworthiness of the issuer is an important consideration when investing in bonds, as the risk of default or non-payment by the issuer can vary depending on factors such as the financial strength of the issuer and the economic conditions in which they operate. Bonds issued by higher-rated issuers, such as governments or highly-rated corporations, are generally considered less risky than bonds issued by lower-rated issuers, and may therefore offer lower interest rates.

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