Bonds generate income for investors in the form of interest payments. When an investor buys a bond, they are essentially loaning money to the bond issuer, which can be a corporation, government, or other entity. The bond issuer agrees to pay the investor a fixed rate of interest, called the coupon rate, on a regular basis for the term of the bond.
For example, if an investor buys a $1,000 bond with a coupon rate of 5%, they will receive $50 in interest payments each year for the term of the bond, which could be anywhere from a few months to several decades. At the end of the term, the bond issuer repays the principal amount to the investor.
Bonds can provide a steady source of income for investors, particularly those who are looking for more predictable returns than the stock market can offer. However, bonds also carry some risks, such as the possibility of default by the bond issuer or fluctuations in interest rates that can affect the value of the bond. As with any investment, it's important to carefully consider your goals and risk tolerance before investing in bonds.
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