Attributes of Fixed Income Securities
In addition to selling stock, there is another way to raise capital: selling bonds. A bond is a certificate that represents a debt, or an IOU, from the issuing entity (institutions or individuals) to the bondholder or investors. Because bondholders have, in effect, made loans to the issuer, they are legally "creditors" and not "owners" like stockholders. The amount of the loan is known as the principal, and the compensation given to lenders for making such funds available is typically in the form of interest payments. Like stocks, there are essentially two ways to make money from bonds: (1) capital gains, which are achieved by selling a bond for more than it cost to buy, and (2) the receipt of periodic interest payments.
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