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Friday, July 21, 2017 
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Bonds

Unlike shares, which involve the participation in the share capital of a company, bonds represent a loan granted to a company for a predetermined period of time at a fixed or variable interest rate, known at the time of issuance.

Bonds are usually issued by companies that need funding, as an alternative to bank loans or financing from shareholders through share capital increases. This bonds are called corporate bonds. Apart from companies, central or local public authorities can also issue bonds, such as treasury securities or government bonds with various maturities or municipal bonds issues by cities or counties. Risk of the bonds issued by the central and local authorities is lower than for corporate bonds. This risk is determined based on the issuers’ ability to repay the loan at maturity.

In exchange for the funding raised via the bond issue, institutions and companies pay interest (called a coupon payment) periodically. Interest can be fixed, over the life of a bond, or variable, calculated and announced periodically.

The amounts borrowed can be repaid either in several stages during the life of the bond, or at maturity.

Bond investors may decide to keep the securities until maturity and cash in interest and repayments of principal, or can sell them on the stock exchange.

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