A company like General Motors has two ways to raise money: it can issue stock (which means it can sell shares of its ownership), or it can issue bonds. Bonds are loans you make to the company and in return you receive a specific interest rate for a specific period of time.

A key difference between stocks and bonds is that with bonds you are assured of the return (not the case with stocks). That is why bonds are also known as fixed-income investments.

Financial consultants often tell people to buy bonds as a way to diversify their investments, or as income-producing investments during retirement.

Bonds work a lot like certificates of deposit or share certificates. When you buy a bond, you agree to pay a certain amount of money (the face value), leave it in an account for a certain amount of time, and the issuer promises to pay you back on a particular day (the maturity date) at a predetermined rate of interest (the coupon).

Here’s an example: you buy a bond with a $1000 face value, a 5% coupon and a 10-year maturity. You collect interest payments totaling $50 (5% of $1000) in each of those 10 years and at the end of 10 years, you collect your $1000.

Some bonds (like some certificates) are callable, which means the company can decide to pay them off early and avoid future interest. For instance, if you buy a bond with a 5 percent yield and after one year, rates drop and similar bonds are yielding 4 percent, the issuer may decide to call your bond.

Bonds usually don’t make as much money as the stock market or other growth-oriented investments like real estate. However, during terrible economic times such as the Great Depression, bonds sometimes perform better for investors. They are good investments when interest rates are low and if the stock market is not performing well.

Bond prices and yields vary based on interest rates, supply and demand, credit quality, maturity and dollar amount. A general rule is that as interest rates go down, bond prices go up and vice versa.

Bonds can be issued for a period of months or even up to 100 years. Any kind of business can issue them – even rocker David Bowie issued “Bowie bonds.” Companies can sell convertible bonds which means the bonds can be converted into stock.

People can trade bonds on the bond market, and this is where things get tricky. The price of a bond can rise or fall, and that will, of course, change its interest rate.

Say that you purchase a 20-year bond with a face value of $1000 and a coupon rate of 8%, earning you $80 a year and 8% yield. After three years, it can go on sale for $800, but still at 8% interest on the original $1000. The lower price is called the bond’s discount price. You will still earn $80 a year, but now your interest rate is 10%. If you pay a premium price of $1200, you’ll still earn $80 a year, but your interest rate is now only 6.66%.

There are actually zero coupon bonds sold at deep discounts from their face value so they do not generate periodic interest

payments. The return is realized at maturity. Bonds with a lower coupon rate will fluctuate more in price than a higher coupon bond. Zero-coupon bonds fluctuate the most.

Bond market prices change every day. They are listed in the financial pages of newspapers typically like this: