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These are the parts of a bond, or what's under the hood. You'll want to look at all these components when deciding whether a bond is worth your time and money. Most bonds have four basic components:
- Interest Rate/Coupon Rate: This is the interest rate you'll be paid for investing in the bond.
- The Borrower: Companies don't issue bonds out of the goodness of their hearts. They issue them because they need to raise money, and they need you to lend them cash. The quality of the borrower is important. If the company goes bankrupt and you're left holding their bond, you might never get paid for your investment.
- Maturity Date: This is the date at which the bond comes due. Every year you have your bond, you'll earn a bunch of cash for lending the issuer money. When you reach the maturity date, you'll get back the money you invested, too.
- Principal/Par Value: This is the amount the bond issuer borrows from you and the amount you lend. Bought a bond from an issuer for $1,000? $1,000 is the par value.