What are the two primary ways to make money by investing in bonds?

The two primary ways to make money by investing in bonds are through interest and capital gains. When you invest in bonds, you typically earn interest payments, also known as coupon payments, which provide a steady income stream throughout the life of the bond. This interest is paid regularly, usually semi-annually or annually, and is a significant reason investors are attracted to bonds, as it provides predictable returns.

In addition to earning interest, investors can also benefit from capital gains. If interest rates decline after a bond is purchased, the price of that bond in the secondary market will typically increase, as newer bonds will be issued at lower rates. As a result, investors can sell the bond at a higher price than what they paid, thus realizing a capital gain. This combination of interest income and the potential for capital appreciation helps make bond investing appealing.

The other options do not accurately capture the relationship between bonds and returns. Dividends are more commonly associated with stocks rather than bonds; assets appreciation refers to an increase in value related to various investment types, but it does not specifically highlight the mechanisms in bond investing. Selling short involves a strategy typically applied to stocks, and thus does not relate directly to how returns are generated in bond investments.