Bonds

A bond serves as a financial instrument that allows individuals to make loans to entities such as governments or corporations. In this agreement, the institution agrees to pay a predetermined interest rate on the invested amount for the life of the bond. In addition, the principal amount is returned upon completion of the loan term. Given that bonds are classified as “negotiable securities,” they can be bought and sold on the secondary market. Therefore, investors have the potential to make a profit if the bond's value rises, or to mitigate losses if they sell a bond that has depreciated in value. Notably, the value of a bond, which is a debt instrument, is closely related to prevailing interest rates.