ELi5: How can somebody place money in a bond, and it will be worth more money in the future?

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ELi5: How can somebody place money in a bond, and it will be worth more money in the future?

In: Economics

3 Answers

Anonymous 0 Comments

When you buy a bond, you are lending money to an organization — typically government agency or company. The seller of the bond agrees to pay back the principal plus interest when the bond matures.

Anonymous 0 Comments

Purchasing a bond is the same as giving the government a loan (if we are discussing a government originated bond), which will be paid back to you in the future, with interest added. So, if I purchase $100 worth of bonds, the government gets my $100 and I get the assurance of the government paying me back on a particular date in the future, giving me back my original $100 plus the money I am owed from whatever the interest rate was.

Anonymous 0 Comments

A bond is what you buy, but it’s what someone sells as well. The seller is _agreeing_ to pay it back at a later time with interest – it’s type of structured loan. That interest is what makes it more valuable later. The difference relative to a bank loan is that it’s sold to the public (or to a group of buyers).