What is a bond and how does it differ from a loan?

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What is a bond and how does it differ from a loan?

In: Economics

5 Answers

Anonymous 0 Comments

A bond is basically a securitized loan, meaning it’s created and something sold to investors. This means it can be bought and sold from investor to investor.

Bonds are also sold to many parties, vs. a loan that’s typically a single lender. Instead of applying to a bank for a single $10m loan, a bond issuance could get sold off to 10,000 investors in $1000 increments.

And in terms of repayments, bonds pay interest according to the terms (eg. 5% for 10 years) and then return the principal at the end o the term vs. a loan that’s a combination of interest and principal during payments.

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