Okay so I'm reading my finance book and I see this think that says "bonds" what its exactly? what they buy? who get benefit of it? how?
please heeelp!
think "reverse loan"
i found this on google: "a certificate of debt (usually interest-bearing or discounted) that is issued by a government or corporation in order to raise money; the issuer is required to pay a fixed sum annually until maturity and then a fixed sum to repay the principal"
so the issuer decides an overall amount of how much they want to sell in bonds, and the market is open [typically] to purchase they're own amount of it.
bonds generate money through interest. so the more you invest, the longer you have it, the more its worth.
issuer gets the money they need now, the investor gets their money back plus interest later.
issuer: "hey, I need money"
buyer: "how much do you need?"
issuer: "how much are you willing to give me?"
lol. hope this helps :D
Companies and governments issue bonds to raise money. A bond issue is essentially a loan from whoever wants to take the risk on buying them.
Say you needed £1000 and didn't want to give away part of your business by issuing shares, instead you could issue a thousand bonds of £1 each with a 1-year maturity of £1.04, which means that you would have to buy the bonds back for £1040 in a year's time. Investors would be interested in buying the bonds because a 4% yield is good at the moment. The interest rate you would have to offer would obviously depend on the market and how risky the investment is for the investor (e.g. if the £1000 was to help your successful business to expand faster then it would be low, or if it was to fund your solar powered torch invention or anything which made it unlikely for investors to see their money back then it would be something silly like 100% - also known as a Junk Bond - meaning you would have to buy the bonds back for £2000 in a year's time.
Bonds can be traded after issued and so they are not risk free for investors like a bank account. For example if you issued your junk bonds with a 100% yield to launch your solar powered torch invention and then 6months down the line your sales were through the roof, then the risk to the market of not getting their £2000 back would be very low and the value of each bond would be close to the £2 maturity value and the original investors would have doubled their money, whereas if you hadn't sold a single torch and were on the verge of bankruptcy the value of those bonds would be close to 0 because the chance of you being able to buy the bonds back for the agreed £2 each would be very low, and the original investors would have made a significant loss.