What are bonds

Training 645 minuteswhat are bonds

You are 41 and an engineer at a factory. In 6 years you will pay for your child’s college, and risking that money feels wrong. A friend in finance says: look at bonds.

Training goal: Learn how bonds protect a goal

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Situation

1. A bond with $1,000 face value, a 5% coupon and 5 years to maturity. What does that mean?

I lend $1,000 and get $50 a year
I buy a piece of the company
I get 5% only at the end

2. Two borrowers: a stable government at 4% and a little-known company at 14%.

The company: 3.5 times the income
Half and half for balance
The government: the goal matters more

3. A year later, interest rates rise from 4% to 6%. Your bond now trades at $965.

Hold to maturity
Sell now before it drops more
Sell and buy a new 6% bond

4. College is 6 years away. How do you split the savings?

All in stocks for growth
Some stocks, more bonds
Bonds that mature in 20 years

What you will learn

A bond: you lend money and get coupons plus the face value back.
When rates rise, bond prices fall, and the other way round.
A high coupon is payment for default risk.

Your real-life step

Look up your government bond yields for 1, 5 and 10 years and compare them with your savings rate.

Questions and answers

What is the difference between stocks and bonds?

A stock is ownership with uncapped but uncertain growth. A bond is a loan with fixed payments: lower return, smaller swings.

Why do bond prices fall when interest rates rise?

New bonds pay higher coupons, so older low-coupon bonds sell only at a discount. The longer the maturity, the bigger the drop.

Can you lose money on bonds?

Yes: if the borrower defaults or if you sell before maturity after rates rise. High-quality bonds held to maturity return their face value.

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Numbers are illustrative. A game, not financial advice.