Question

I get how bonds and stocks are different. But how exactly do bonds work? My textbook...

I get how bonds and stocks are different. But how exactly do bonds work? My textbook explains them as IOU's and I get that they are given out by banks and corporations to private savers, but I'm confused on who owes who and which side is accumulating interest?

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Bonds are basically an asset for the holder and a liability for the issuer. If I am a bondholder then its an investment for me and I can expect the fixed return plus the capital gains if the price of bond I am holding increases. They are issued for different purposes by different agencies. Governments issue bonds to get money from the public for the developmental activities, the central bank does it for sucking the liquidity from the market. Interest is accumulated by holder and paid by the issuer.

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