Bonds, a common investment instrument, are known for their semiannual coupon or interest payments and fixed principal values, often referred to as face or par values, which are paid back at maturity. Unlike stocks, which may pay dividends, bonds primarily generate returns through these fixed interest payments. The par value of a bond remains constant throughout its life, but the actual price of the bond can vary in the secondary market due to changes in interest rates. If interest rates rise after a bond has been issued, its market price will likely fall, and vice versa.
Investors often choose bonds for their predictable income from interest payments. These payments are typically made twice a year, providing investors with a steady stream of cash flow. The fixed nature of these payments makes bonds an attractive option for those seeking stability in their investment portfolio. However, it’s essential to note that while interest payments are fixed, the market price of a bond can fluctuate. This means that if an investor sells a bond before maturity, they may receive more or less than the face value of the bond, depending on current market conditions.
In summary, bonds do not pay dividends like stocks. Instead, they pay interest in the form of coupon payments. These payments are made at regular intervals, usually twice a year, providing investors with predictable income. The par value of a bond remains constant, but its market price can fluctuate based on changes in interest rates. Investors should be aware of these dynamics when considering bonds for their investment portfolio.
(Response: Bonds do not pay dividends; they pay interest in the form of coupon payments.)