What financial security represents a promise to repay a specific amount?

A bond is a financial security that represents a promise to repay a specific amount, known as the principal, at a specified future date, along with periodic interest payments. When an investor purchases a bond, they are essentially lending money to the issuer—whether it be a corporation, municipality, or government—who in return agrees to pay back that amount on maturity plus interest, which serves as compensation for the use of the funds. This arrangement makes bonds a key instrument in fixed-income investing, appealing to those looking for a steady income stream and lower risk compared to other investment types, such as stocks or equities.

In contrast to bonds, stocks represent ownership in a company and come with variable returns based on the company's performance, without guaranteed repayment. Equity refers to ownership in an asset, typically a business, while commodities are physical goods traded in markets, none of which promise a fixed repayment of capital.