What is a bond in the context of investments?

A bond is fundamentally a fixed-income investment where an investor lends money to an entity, which could be a government, municipality, or corporation, for a defined period at a fixed interest rate. When you purchase a bond, you are essentially providing a loan to the issuer in exchange for periodic interest payments, known as coupon payments, and the return of the bond's face value when it matures.

This type of investment is characterized by its predictable cash flow and lower risk compared to stocks, making it attractive to conservative investors or those looking for a stable income stream. Bonds can serve various purposes within an investment portfolio, such as preserving capital and generating income.

While shares of stock represent ownership in a company, a bond is a contractual obligation. Currency exchange rates pertain to the value of one currency in relation to another, and a savings account is an interest-bearing deposit account held at a financial institution, neither of which fit the definition of bonds as fixed-income securities.