Unit 2 · Level 1 · The instruments
Bonds: being the bank
A bond turns you into the lender. You hand a government or company, say, €1,000; they promise regular interest payments (the coupon) and your €1,000 back on a set date (the maturity). Steadier than stocks, yes. But 'safe' has fine print: in 2022, when interest rates jumped, even solid government bonds lost over 10% of their market value in a single year.
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What you get asked
Buying a bond makes you what, exactly?
Stock = owning, bond = lending. As a lender you get no vote and no share of profits, just the promised interest and your money back at maturity.
The regular interest payment a bond makes is called its ___.
The name is historical: bonds were once paper certificates with little coupons you physically clipped off to claim each payment.
Match the bond term to its meaning
Four words that describe every bond on Earth, from a German government Bund to a risky company's 'high-yield' debt.
Interest rates in the economy jump sharply. What happens to the market price of existing bonds?
Nobody pays full price for an old bond paying 1% when new ones pay 4%. That see-saw (rates up, bond prices down) is exactly what hit bonds hard in 2022.
Why isn't a bond ever completely risk-free?
Two real risks: the borrower not paying (default) and rates moving against you. Bonds are the steadier tool in the kit. Steadier, not bulletproof. 🐜
The rest of this unit
Stocks, bonds, funds and cash: what you're really buying.