Learn how bonds works

 A bond is a debt instrument issued by a government entity or a corporation to raise capital. The purchaser of a bond is a creditor and the bond issuer is the debtor.

o    When a bond is issued, it is sold to investors for the first time. The investor pays the issuer (government or corporation) for the bond.

o    Say, for example, that General Electric (GE) wants to raise money to build a new plant. They issue a $100,000,000 15-year, 8% corporate bond. Assume that 2,000 people buy a portion of the $100,000,000 bond issue. The bond buyers are paid 8% interest on their investment each year.

o    At the end of 15 years, the bond matures. GE repays the entire $100,000,000 to the bondholders. All of the bondholders are repaid their portion of bond issue.

o    A bond is issued to the public for the first time in the primary market. The GE bond example is a primary market transaction. GE (the issuer) gets the sale proceeds from the investors. They use the proceeds to build the new plant