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How do bondholders receive payment for their investment?

There are two ways that bondholders receive payment for their investment. Coupon payments are the periodic interest payments over the lifetime of a bond before the bond can be redeemed for par value at maturity. Some bonds are structured differently.

How much does it cost to buy a bond?

You might pay $10,000 for a bond that will return $20,000 in 20 years. The difference between the purchase price and face value is your interest. Investors still pay taxes each year on a prorated amount of the interest to be received at maturity. Once a bond is issued, it can trade between investors on the secondary market.

What happens when you buy a bond?

When you purchase a bond, you essentially lend money to the issuer in exchange for periodic interest payments and the return of the bond’s face value upon maturity. Bonds are a fundamental component of the financial markets, offering a way for entities to raise capital while providing investors with a relatively stable investment option.

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