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Definition: Bond

Bond is a fixed income security or a debt instrument where the issuer of the bond is the borrower of a loan and the holder of the bonds are lenders.

A bond is also known as a fixed income security because it generally entails fixed interest payments at regular intervals which are also known as coupon payments and the payment of the principal at a future date also known as the maturity date.

The major difference between a stock and bond is that with a stock there is ownership in the company whereas a bond makes one a lender of the company which implies that he has a superior claim on the firm’s assets upon liquidation as compared to a stockholder.

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