Bonds are sold by businesses and governments to raise capital for special projects and to help with operating costs.  By purchasing a bond you are essentially extending a loan to the issuer for a set timeframe.  By accepting your money, the issuer agrees to pay you yearly interest and to give you back your principle (the original purchase amount).   The principle is repaid once the bond reaches maturity. 

A bond reaching maturity can be determined by a few different methods.  The maturity date can be a predetermined set date.  In addition, some bonds allow the purchaser to “call” on a date before the set maturity date.  It is also important to note that the timeframe until maturity is reached is called the term. 

There are two main components of a bond; par value and coupon.  The issue price which is often referred to as the face value of the bond is called the par value.  A bond’s interest payments are called its coupon.   When judging the value of a bond it is important to determine its yield.   The yield is determined by the interest payments (coupon) divided by the purchase price.    The most important element however in judging the real value of a bond is its total return.  The total return includes all money gained and lost.