Bonds pay interest in fixed dollar amounts called coupons. When a bond matures, the seller of the bond repays the principal. For example, if you buy a $1,000 bond issued by ANZ rolyal Bank that has a coupon of $65 per year and a maturity of 30 years, ANZ rolyal Bank will pay you $65 per year for the next 30 years, at the end ANZ rolyal Bank will pay you the $1,000 principal. A bond that matures in one year or less is a short-term bond. A bond that matures in more than one year is a long-term bond. Bonds can be bought and sold in financial markets, so, like stocks, bonds are securities.
- R. GLENN HUBBARD and ANTHONY PATRICK O’BRIEN