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What are Bonds? Fixed Income 101: Easy Peasy Finance for Kids and Beginners - YouTube
Channel: Easy Peasy Finance
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Howdy Wall Street Willy.
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I have a really big question for you.
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Yes, what is it?
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What is a Bond?
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Well, a bond is basically a loan you make
to a company – just like a bank makes a
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loan to you.
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Whoa…
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That’s awesome!
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You mean, I can lend money to someone in a
big, huge business, with just a penny?
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Not exactly.
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Well then, what do you mean?
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I can lend money to someone?
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Yes, you can lend money to somebody by buying
a bond.
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How is a bond different from a stock?
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In a stock, you are owning a part of the company.
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But in a bond, you have a loan that you make
to the company – but you do not own any
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of the company.
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But then, what’s the point of getting a
bond?
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The point of getting a bond is that a bond
pays interest.
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The interest can be paid monthly, yearly,
or once every three months (quarterly).
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And every time, they will pay you a certain
amount of interest that’s a percentage of
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the principal (or the amount that you gave
them as a loan).
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That’s awesome.
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But how much interest does a bond pay?
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Well, the coupon – or how much interest
the bond pays – is dependent on what bond
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it is and how much the issuer (or the person
issuing the bond) wants.
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So you mean I can just make up an amount if
I issue a bond?
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Yes, but you would need to start a business
so that you can issue a bond.
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Is a coupon you get as interest in a bond
like a store coupon?
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No, a store coupon gives you a discount on
something that you buy.
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But this coupon gives you plain old money!
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Awesome – I like bonds!
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I have another question for you.
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How long would it take me to get my principal,
or the money I gave them, back?
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Well, that depends on the term of the bond,
or how long it is for.
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You’ll get the principal, or the amount
you gave for the loan or bond, back at the
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end of the term, which can be decided by the
company.
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But you can also sell you bond to another
person on the bond market.
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Well, there is so much selling and stuff…
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But how expensive is a bond anyway?
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A bond is pretty much as expensive as the
person who issues the bond decides.
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It could be $100, $1,000 or even $10,000!
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Whoa… $10,000 is a lot of money!!
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Well that’s just plain great!
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Yes…
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And, do you have another question?
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Yes, I do.
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I to another question.
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Can I issue my very own bond, that costs a
Billion Dollars, and it’s term, or how long
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it’s for, is a 100 years?
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In fact, you can.
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If you own a business, you can issue a bond
for that business.
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Whoa… that’s awesome!
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But in real life, have there been any bonds
that were a 100 years, or a lot of money?
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Well, that is true.
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There have been such bonds.
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In 1993, Disney had issued bonds with a term
of 100 years, and they are due in 2093.
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And that’s when we’ll get the principal
amount back.
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So a real life business issued 100 year bonds?
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Yes, they did!
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So, it’s possible?
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Yes, it is possible.
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I have another big question for you.
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Where can I buy a bond?
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Can I buy it from a grocery store?
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Not really.
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You cannot but it at a grocery store, because
just like stocks, special people called brokers
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are the only ones who can buy bonds at bond
exchanges.
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And, you can also buy a bond through a bank.
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Well, are there different kinds of bonds?
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Yes, there are different kinds of bonds.
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But that’s a story for another time…
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And one more thing- remember, finance is your
friend!
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