If a company wants to expand, one option is to borrow money from individual investors, pension funds or mutual funds. The company issues bonds with different interest rates and sell to the public. Investors purchase with the understanding that the company will have to repay the original principal (the amount the investor paid to the company), plus interest owed on a given date (this is called the "maturity" date.) A bondholder is mailed a check from the company at fixed intervals, in the United States; it is common for bonds to pay interest twice a year.
In some other countries, the bonds pay interest once a year. However, other bonds may pay interest monthly. It is entirely up to the "contract" governing the issuance of bonds. Unfortunately, these documents can be very difficult to obtain, unlike the 10K annual report or action. The interest rate that bondholders earn depends on the strength of the company issuing the bond.
For example, a blue chip company is more stable and has a lower risk of default on its debt. When companies like Exxon Mobile, General Electric, etc., issuing the bond, it may only pay interest at 7% or less. While a much less stable start to pay 10%. A general rule when investing in bonds is "the higher the interest rate, the increased risk of the bond."
Who can issue bonds? Governments, municipalities, a variety of institutions and corporations could issue a bond. There are many types of bonds, each with different characteristics and features. Some of the most notable are zero coupon and convertible. For new investors, one of the biggest risks of investing in bonds is something known as bond spreads. This huge hidden cost can result in thousands of dollars in losses if trade links often.
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