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How to Understand Bonds

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From Quick Guide: Stock and Bonds for Beginners

Summary: A bond is essentially a debt that funds a company, and that will be paid back with interest. Understand bonds and how it's different than equities with tips from a financial planner in this free video on personal finance and the stock market.

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By Chris Markowski
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Christopher Markowski has carried the titles of author, investment banker, equity analyst, muckraker, all-around trouble-maker and most importantly, consumer advocate. He is the...read more

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Video Transcript

"Hello everyone. This is Chris Markowski, President of Markowski Investments and host of the Watchdog on Wall Street Show, trying to make some sense out of bonds. What exactly is a bond. Most people don't even know believe it or not. I ask the question of a lot of the people and, "I don't know. I don't know what a bond is". A bond is debt. That's all it is. A corporation's company's on various different ways they can go about funding their operations, making their companies grow. When they issue stock which is equity, they're actually selling a piece of that company to somebody and that's what's traded out there. You're trading pieces of little companies. A bond is debt. A company issues debt and, kind of almost like a mortgage if you want to think about it in some ways. And they go about taking the money in and then they pay back interest on that debt. There's different size bonds. Ten year bonds, fifteen year bonds, thirty year bonds, significant periods of time where you can get that money back. Now the interesting thing about bonds which makes it a little bit different, or a lot of it different than equities is the fact that the pecking order. When you're a bond holder, you're actually a creditor of that company. So God forbid something was to go wrong with XYZ Corporation and they had to go bankrupt and they had to liquidate, you are above the shareholders. The shareholders get wiped out, you're at the top of the list with the creditors, then preferred stockholders, then the shareholders. That's a little bit about bonds. I could go much, much farther on, but I don't want you to fall asleep. This is Chris Markowski, your watch dog on Wall Street."

eHow Article: How to Understand Bonds

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