2.1. Bonds and the Bond Market

As you know, businesses and governments borrow capital by issuing bonds. A bond is the borrower’s promise to pay an amount of money lent by a lender. The borrower is called the issuer of a bond, and an issuer may be a company, a national government, or a municipality. The lender is usually an investor. The borrowing company promises to return the borrowed money to the investor by a certain date and to deliver a periodic interest payment on the borrowed funds. Bonds have a maturity date ranging from 1 to 20 years or more. This is the date the bond must be redeemed; that is, when the amount of money originally borrowed, the principal, must be repaid.

The principal that is printed on a bond certificate is called its par value. This is the amo