What a bond actually is

A bond is a loan. When you buy one, you're not buying a piece of a company or a government the way you would with a stock, you're lending them money directly, and they owe you for it. The organization that issues the bond, called the issuer, could be the Philippine government, a company like a bank or a conglomerate, or even a local government unit.

In exchange for your money, the issuer makes two promises. First, it agrees to pay you interest at regular intervals, usually every few months or once a year, for as long as you hold the bond. Second, it agrees to return the full amount you lent, called the principal or face value, on a specific date in the future called the maturity date.

That structure is what makes a bond feel different from a stock. A stock has no promised payment and no end date, its value depends entirely on how the company performs. A bond, in contrast, spells out exactly what you're owed and when, as long as the issuer stays able to pay. The rest of this course builds on that one idea: a bond is a contract to be repaid, and everything about how bonds are priced, rated, and used comes back to how confident you can be that the issuer will honor it.

You lend ₱20,000 to a company by buying its 5-year bond with a face value of ₱20,000. The company pays you interest every year for five years, and at the end of the fifth year, it hands back the full ₱20,000 principal, on top of all the interest you already collected.