Thursday, January 13, 2005

What are bonds?

Company Bonds are legal agreements between an investor to lend a fixed amount of money today and a company to use in the business at an agreed fixed rate at a fixed date in the future. Investor is the creditor, company is the debtor. For example, a company issues a bond of $10,000. for 4% interest per year for 1 year. The company must pay the investor the agreed upon amount plus the interest at the agreed date even if the company is not profitable at that agreed date. If the company is profitable, the company will only pay the agreed upon amount and interest. Investors risk limited to the company going belly up.

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