Introduction
A bond is a financial instrument that represents a loan made by an investor to a borrower, typically a corporation or government entity. Bonds are used by companies and governments to raise capital for various projects or operations.
Types of Bonds
- Corporate Bonds
- Government Bonds
- Municipal Bonds
Characteristics of Bonds
- Face Value
- Term
- Interest Rate
Example
Company X issues $1,000 bonds with a 5% interest rate for 5 years. An investor buys 10 bonds, lending the company $10,000. Company X pays the investor $500 in annual interest ($1,000 face value x 5% interest rate) for a total of $2,500 over 5 years.
Case Study: Apple Inc.
Apple issued a $2.5 billion bond to fund share buybacks and dividends. The bond offering received overwhelming demand from investors due to Apple’s strong financial position and credit rating.
Statistics
In 2020, the global bond market was valued at $128 trillion, with government bonds accounting for the largest share. The average yield on corporate bonds was 3.5%.
