Was playing Red Dead 2 and the gang comes into some Bonds. Apparently they’re worth money but idk how the gang gets a profit from it, or how bonds work in civilian life.
In: Economics
A bond is essentially a loan. A bond pays out interest in exchange for having loaned the issuing entity money by buying the bond. The bond will eventually mature at which point you are paid back the bond. As an example, you can buy a new 10 year US treasury bond from the US federal government at 5% for say $1k. It pays out $25 semi annually (twice per year) ($1k * 5% / 2). It keeps doing that for 10 years after which the bond matures and you get back the $1k.
Lots of entities issue bonds: federal, state, city governments, banks, companies.
There is also a secondary market where you can buy bonds that were already in circulation. If you have the 10 year 1k bond and then interest rates for new bonds goes down, your bond becomes more valuable since its interest rate is higher than what someone can get new, so you can decide it is worth just selling it now for an immediate profit than to have to wait for interest payments.
Some bonds have a fixed rate for their lifetime and some have a variable one, such as I bonds that pay a fixed percentage plus a variable percent tied to inflation.
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