What does purchasing a bond typically mean for the investor?

When an investor purchases a bond, they are essentially providing a loan to a company or government entity. In this arrangement, the bond represents a contractual agreement where the investor lends a specific sum of money for a designated period. In return, the issuer of the bond promises to pay back the principal amount at maturity, along with periodic interest payments, typically referred to as coupon payments. This means the investor does not acquire ownership in the company but instead becomes a creditor.

This understanding highlights the nature of bonds as debt instruments, distinguishing them from equity investments like stocks, where ownership in a company is obtained. It also clarifies that purchasing a bond does not involve real estate or foreign currency transactions, as those are completely different types of investments.