What is the definition of a bond?

A bond is defined as a fixed income investment that represents a loan from an investor to a borrower, typically a corporation or government. When an investor purchases a bond, they are essentially lending their money to the issuer in exchange for periodic interest payments, known as the coupon, and the return of the bond's face value at its maturity. This definition captures the essence of how bonds function within the financial system, highlighting their role as a means for borrowers to raise capital while providing investors with a way to earn a predictable income over time.

This definition is distinct from equity investments, which involve ownership stakes in a company and come with variable returns based on the company’s performance, as well as the reliance on dividends for returns, which is not applicable to bonds. Additionally, while bonds do involve interest, focusing solely on the agreement aspect or the loan arrangement misses the fundamental fixed income nature that characterizes bonds. Thus, the correct characterization of a bond is its role as a fixed income investment representing a loan from an investor to a borrower.