Bonds:
A bond is a fixed-income security that represents a loan made by an investor (you, in this case) to a borrower (such as a company or government).
Let’s assume you write a letter (or email) to your friend asking for a loan of ₦10,000, with a promise to pay back with an interest of 10% (₦11,000) in 1 month’s time. That letter becomes a bond. The terms you mentioned define the key components of this bond:
Principal: The ₦10,000 you’re requesting is the principal amount. It’s the initial investment or the face value of the bond.
Coupon: The ₦1,000 you promise to pay back to your friend is the coupon. It’s the periodic interest payment made by the borrower to the lender (your friend) during the bond’s term.
Interest Rate: You mentioned an interest rate of 10%. This means that your friend will receive 10% of the principal (₦10,000) as interest (₦1,000) over the bond’s duration.
Tenor: The tenor is the time period for which the bond is issued. In your case, it’s 30 days or 1 month.
Bonds can be issued by governments (treasury bonds), corporations (corporate bonds), or other entities. They are a way for these entities to raise capital.
Treasury Bonds:
When a government borrows money through bonds, it’s called a treasury bond.
Treasury bonds are typically considered low-risk investments because they are backed by the government’s credit.
Governments issue treasury bonds to finance various projects, infrastructure, or budget deficits.
Note that bonds can have varying terms, interest rates, and maturities, but the basic structure remains consistent, i.e., principal, coupon, interest, and tenor.
If you have any more questions or need further clarification, feel free to ask