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Education: How do bonds work?
A bond is essentially a loan from an investor to a bond issuer - such as a government, government-related agency or a corporation - for an agreed period of time. In return, the issuer generally promises to pay the investor a specified rate of interest (the coupon) for the life of the bond and to repay the principal (or the face value) of the bond at the end of the specified period (at maturity). Bonds do vary considerably and there are bonds that do not follow this structure, such as inflation-linked bonds (where the coupon and/or face value are not fixed, but are linked to a consumer price index or other measure of inflation).

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Page last updated 26 Feb 2010

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