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Financial Times Guide to How the Stock Market Really Works, 5th Edition by Leo Gough

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3

Bonds

A bond is an IOU issued by a government, local authority or a company in return for the loan of cash the investor is making. In most cases, a fixed rate of interest is payable to the bond holder (the investor), and the bond issuer promises to pay back the amount borrowed (the face value of the bond) at a certain time in the future. This is different from investing in shares because you do not buy any share of the ownership of the lender. Another important difference is that bonds are generally issued for a fixed period of time, and the money you have lent is repaid in full at the ‘par value’ when the term of borrowing expires.

In the UK, bonds are traditionally called ‘stocks’ and equities are called ‘shares’; in the USA, fixed-interest ...

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