What is a Bond | by Wall Street Survivor

What is a bond?

A bond is a debt investment in which an investor loans money to a corporate entity or government. The funds are borrowed for a defined period of time at either a variable or fixed interest rate. If you want a guaranteed money-maker, bonds are a much safer option than most. There are many times of bonds, however, and each type has a different risk level.

Unlike stocks, which are equity instruments, bonds are debt instruments. When bonds are first issued by the company, the investor/lender typically gives the company $1,000 and the company promises to pay the investor/lender a certain interest rate every year (called the Coupon Rate), AND, repay the $1,000 loan when the bond matures (called the Maturity Date). For example, GE could issue a 30 year bond with a 5% coupon.

The investor/lender gives GE $1,000 and every year the lender receives $50 from GE, and at the end of 30 years the investor/ lender gets his $1,000 back. Bonds di er from stocks in that they have a stated earnings rate and will provide a regular cash flow, in the form of the coupon payments to the bondholders.

This cash flow contributes to the value and price of the bond and affects the true yield (earnings rate) bondholders receive. There are no such promises associated with common stock ownership.

After a bond has been issued directly by the company, the bond then trades on the exchanges. As supply and demand forces start to take effect the price of the bond changes from its initial $1,000 face value. On the date the GE bond was issued, a 5% return was acceptable given the risk of GE. But if interest rates go up and that 5% return becomes unacceptable, the price of the GE bond will drop below $1,000 so that the effective yield will be higher than the 5% Coupon Rate. Conversely, if interest rates in general go down, then that 5% GE Coupon Rate starts looking attractive and investors will bid the price of the bond back above $1,000. When a bond trades above its face value it is said to be trading at a premium; when a bond trades below its face value it is said to be trading at a discount. Understanding the difference between your coupon payments and the true yield of a bond is critical if you ever trade bonds.

[NathanHQ]

Also, a general principle of bonds is that the older you get, the more bonds you will likely own in your portfolio. Bonds generally do not suit very young people. It's more for people getting closer to retirement.

[lawlaw]

Thanks for your explanations in this video! My lecturer sucks.

[myadix]

after 5 years and thousands of hours learning econmy, i just this channel, and i'm learning from the begining, thank you

[Ally-lijc]

I literally need somebody to teach me this shit it in baby talk. I just cannot get my head around this stuff :(

[rosaresmi]

i am just trying to understand 'the big short' movie in quarantine lmao

[sppsports]

Thank you for a quick, concise and easy to understand explanation.

[wallstsurvivor]

Thanks DayananTrips! Glad you like it!

[nazekpurplesyou]

This video explained everything really well, thank you :)

[hasanozcifci]

nice explanation and turkish subtitle... salute.

[InvestingBookSummaries]

Not a lot of talk about bonds. It's almost always just on stocks. Only a few books I've covered talk about them at all (Security Analysis being the best one). I really like your video style! It's a lot like the plain bagel channel. Very nice video!

[etfguide]

Excellent job on your video presentation. Always clear and simple!

[darrenlo]

When you say paying interests on bonds - do mean simple interest or compound interest?

[Twobit]

So what's the difference between a bond and a CD? Are they the same thing?

[jamescr]

'when interest rates go up, bonds prices go down'. what is the bond price? the face value? or the coupon rate? thanks!

[priyankabhalekar]

Thanks for the video it made understanding bond simple and easy

[kazimubin]

so does
1# the comapny pay monthly coupon rates untill the bond price in paid off, after which contract is over
or
2# the interest in paid monthly and after maturity is over, the (bond provider) pays the amount borrowed?
what i mean to ask is, does the bond provider pay the sum worth the bond to the buyer after maturity, or nah?

[classyaccountant]

This was an excellent video! Simply put and a great overview. I love these videos! Thank you for making them. :)

[dork]

We’re do u find people looking to do the bonds 🥺

[jimflask]

By "money" do you mean worthless debt instruments?

[jaddy]

I FUCKING LOVE YOUR VIDEO"S DUDE. GOD BLESS YOU FOR YOUR HELP!