Corporate Bond
What Is a Corporate Bond?
A corporate bond is a debt security issued by a company to raise capital for business operations, expansion, or refinancing existing debt. Investors who purchase corporate bonds lend money to the company in exchange for regular interest payments.
At maturity, the company repays the principal amount to the bondholder.
Why It Matters
Corporate bonds allow companies to raise funds without issuing additional stock. For investors, these bonds can provide steady income and diversification within an investment portfolio.
However, corporate bonds may carry more risk than government bonds.
How Corporate Bonds Work
A corporation issues bonds with specific terms, including:
- face value
- coupon rate (interest rate)
- maturity date
Investors receive periodic interest payments until the bond matures.
Credit ratings assigned by rating agencies help investors assess the risk of the bond issuer.
Example
A company issues corporate bonds to finance the construction of a new manufacturing facility.
Corporate Bond vs Government Bond
- Corporate bonds are issued by private companies.
- Government bonds are issued by national governments.
FAQs About Corporate Bonds
Are corporate bonds riskier than government bonds?
Yes, corporate bonds typically carry higher credit risk.
Do corporate bonds pay higher interest?
Often yes, to compensate for the additional risk.
Can corporate bonds be traded?
Yes, many corporate bonds trade in secondary markets.
Related Terms
