A bond is a fixed-income instrument that represents a loan made by an investor to a borrower. In the capital stack, being a bondholder is a lower risk than being an equity owner because bondholders have a higher priority claim to assets of the company over common and preferred equity owners.

Generally, Bonds work by paying back a regular amount to the investor, also known as a “coupon rate,” and are thus referred to as a type of fixed-income security. For example, a $10,000 bond with a 10-year maturity date and a coupon rate of 7% would pay $700 a year for a decade, after which the original $10,000 face value of the bond is paid back to the investor.

Compound Bonds are demand bonds with a 7% coupon rate, meaning that they earn a fixed 7% APY rate with interest compounded daily, and can be redeemed at any time.