Personal Finance > Bonds.

Even though stocks and bonds are often mentioned together, they have little in common. While stock represents ownership in a company, a bond represents a debt obligation. In general, bonds offer less surprises than stocks. Historically, they also offer much smaller gains compared to stocks over a long period of time.

A bond is essentially an IOU that the borrower promises to repay at the time when the bond matures. In the mean time, bonds also pay at a fixed interest rate, also known as coupon rate, usually semiannually.

Bonds are often categorized based on the type of bond issuer:

Since bond investing can get rather complicated, many people who are not particularly interested in following the bond markets invest in bond mutual funds instead. Even though buying shares in a bond mutual fund is not the same as buying bonds, it can be useful as a portfolio diversification tool.

The following quiz deals with some basic concepts of bond investing.

Note: To obtain financial advice, please contact a qualified professional.

Also of interest: Online Mortgage Calculator

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