Purpose and benefits

A bond is a certificate that promises to repay a sum of money borrowed, plus interest, on a specified date, usually years into the future. Governments issue bonds, as do corporations and many institutions.

Short-term bonds generally mature in up to 3 years, intermediate-term bonds in 3 to 10 years, and long-term bonds in more than 10 years, with 30 years generally being the upper limit. Longer-term bonds are considered a higher risk because interest rates are certain to change during their lifetime, but they tend to pay higher interest rates to attract investors and reward them for the additional risk.

Bonds are traded on the open market, just like stocks. They are reliable economic indicators, but perform in the reverse direction to interest rates: if bond prices are rising, interest rates and stock markets are likely to be falling, while if interest rates have gone up since a bond was first issued, prices of new bonds will fall.

Related Solutions

Method

Management checklist, answers to FAQs, common traps, and suggested action plans.

Time to Complete

10 mins

Length

2 Pages

Participants

1

Price

£2 Pounds Sterling
(inc. VAT)