What is a bond?

A bond is best described as a loan extended to a borrower, typically a corporation or government entity, which obligates the borrower to pay back the principal amount on a specified date, known as the maturity date, along with periodic interest payments (often referred to as coupon payments) to the bondholder. This relationship makes bonds distinct from equity investments, as bondholders are creditors of the issuer rather than owners.

Bonds serve several purposes, including providing a way for governments and corporations to raise capital for projects and operations while giving investors a relatively stable income source through interest payments. The explanation of a bond encompasses its role in funding and investment, which helps underline its significance within the financial landscape.

The other options do not accurately capture the nature of a bond. Equity investments involve ownership in a company and do not guarantee returns, while bonds offer interest income but do not provide ownership stakes. Similarly, while some investments may promise guaranteed returns, this is not a defining characteristic of bonds. Lastly, although bonds can be part of a retirement savings strategy, they are not in themselves a method of saving for retirement.