Which of the following best defines a bond?

A bond is best defined as a fixed-income security representing a loan from an investor to a borrower. When an investor purchases a bond, they are effectively lending money to the issuer of the bond, which could be a corporation, government, or municipality. In return for this loan, the issuer agrees to pay interest at specific intervals and to return the principal amount when the bond matures. This characteristic of providing periodic interest payments and the return of the principal makes bonds a type of fixed-income security.

Understanding this definition is important because it highlights bonds' role in the capital markets, where they serve as a means for borrowers to raise funds while providing investors with a predictable income stream. Bonds can have various features such as maturity dates, coupon rates, and credit ratings that further define their nature and risk profile, but at the core, they represent a loan agreement between the investor and the issuer.