Bonds
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How do bonds work?
When a company or government entity sells a bond, it sells it for a specific price (the “par” or “face
value”), and agrees to return the purchase price at the end of a specified “maturity” period. For example,
it may sell a $100,000 bond with a 10-year maturity. At the end of the 10-year period, when the bond
“matures,” the investor gets the initial $100,000 back. In the meantime, over the 10-year period the bond
also pays interest. For most bonds, the interest rate — called the “coupon rate” — is established at the time
the bond is sold. The coupon rate can be fixed or variable.