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A bond is a debt obligation, similar to an IOU. When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. In return for the loan, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due. In contrast to bondholders, shareholders are owners of the company they purchase.
There are many different kinds of bonds, including: U.S. Treasuries, municipal bonds, corporate bonds and foreign government bonds.