This is a type of investment that’s also known as “fixed income.” Issuing bonds is one of a few common ways an institution — corporate or government — can raise money. A bond is a contract between the person investing in it (the holder) and the institution issuing it (the issuer).
By investing in a bond, the holder lends money to the issuer. In return, they receive periodic interest payments (hence the name “fixed income”) and, unless the institution fails, get their initial investment paid back at the end of the bond’s life. A bond’s interest rate and riskiness depend on the credit quality of the institution issuing the bond, current interest rates (as set by the Federal Reserve), and the life of the bond.
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