From FinancialPlanning

A bond is, simply put, a loan from an investor to the issuer of the bond. The bond issuer promises to pay interest at a stated rate, at certain intervals (quarterly, annually), and repay the principal after a predetermined time period like 1 year, 5 years, 10 years, or 20 years. While some bonds cannot be transferred, and can only be redeemed by the original investor, most can be bought and sold on secondary markets after they are issued.

Corporate bonds are very different in nature from common stocks. With a bond, you're loaning money to the company, and with a stock you're becoming a part-owner of the company.

Key Terms

Issuer - the company, government, municipality or agency that borrows money by selling bonds. The bond is only as good as its issuer, so the interest rates paid on bonds are related to the strength of the issuer. There is a very low risk that the US government will default on its debt so bonds issued by the US Treasury should pay the lowest rates, for a given term. A corporation will need to pay slightly higher rates on its bonds, because its debts are slightly more risky. A corporation in trouble will need to pay much higher interest rates. The additional interest paid compensates the investor for "issuer risk" which is one of the risks of owning bonds.

Term - the time period before the bond matures. If you purchase a $5,000 bond today, and will receive five years of interest payments, getting your $5,000 back in five years, that's a five-year bond.

Principal or Face Value - the denomination of the bond, such as $1,000, $5,000 or $10,000.

Coupon - the interest payments. Some paper bonds had actual coupons that could be torn off to collect interest payments, but the term sticks even in the age of uncertificated holdings (meaning those where you don't have a physical certificate, but instead hold the security through a brokerage account).

Default - failure to pay interest or principal in a timely manner.