Bond

Bonds are financial instruments that provide income in the form of interest. A bond has a maturity of more than 1 year.

Bonds may change ownership and can therefore be traded on a secondary market, a stock exchange. Bonds can be of two different types, zero coupon bonds and coupon bonds. A zero coupon bond does not yield interest continuously, a zero coupon bond is increasing in value until the date of exercise. Example, one can buy a zero coupon bond for $50 that gives $100 back after five years. A coupon bond gives you interest continuously, the interest is called a coupon since the old days when there were coupons on the security for the bond that you could redeem.

Bonds are issued by the state and corporations. Bonds that are issued by companies with problems are called junk bonds and these bonds provide good returns but are at a high risk.