What is a Corporate Bond Equivalent?
” In most cases, the corporate bond equivalent process requires that the initial investment in each of the two bonds under consideration be the same or very similar. This helps to simplify the process of comparing the rate of return earned from each bond. When the initial investment is the same amount, then the focus shifts to the rate of interest associated with each of the corporate bonds, and the schedule for the payment of that interest. . Many types of bonds provide interest payments on an annual or semi-annual basis. When attempting to determine the corporate bond equivalent existing between two given corporate bonds, it is necessary to make sure the same time period is used for comparison.
Corporate bond equivalents are calculations that have to do with the comparative return associated with a corporate bond. The usual process is to compare the rate of return on a bond that offers interest payments on a semi-annual basis to the rate of return on a bond that provides interest payments on an annual basis. Using a basic formula to convert the two different rates of return into similar amounts of interest earned for the same period can help the bond holder to understand which bond is producing a higher return for the money invested. In most cases, the corporate bond equivalent process requires that the initial investment in each of the two bonds under consideration be the same or very similar. This helps to simplify the process of comparing the rate of return earned from each bond. When the initial investment is the same amount, then the focus shifts to the rate of interest associated with each of the corporate bonds, and the schedule for the payment of that interest. Many t
