A type of debt investment in which an organization borrows money from investors with the agreement to pay back the money at a certain date with a certain interest rate.  A bond’s interest rate is mainly determined by two factors: the quality of the issuing company’s credit and the duration of the bond.  If the company’s credit is low then it means that the bond is riskier as the odds of being paid back are less.  Thus, the interest rate on the bond rises.  In addition, the longer the bond takes to pay out, the higher the interest rate will be due to the Time Value of Money.

« Back to Glossary Index