What is a Corporate Bond?
Corporate bonds are, at their simplest, loans that investors make to public and private corporations. Consequently, bonds are referred to as debt securities. Corporations generally issue corporate bonds to raise money for capital expenditures, operations, and acquisitions. Typically, bondholders receive interest payments during the term of a bond (or for as long as the bondholder owns the bond), at the stated interest ratealso called the coupon rate. In addition, if the bondholders hold the bond until its maturity date, they also are repaid the principal amount, called par value or face amount.
Corporate bonds are debt instruments that are issued by corporations considered to be publicly held. Generally, a corporate bond is issued as a means of raising necessary funds to allow the company to engage in an expansion project, or to address other corporate projects that are anticipated to increase the profitability of the company over the long term. The expectation is that the corporation will begin to benefit from the project before the bond issue matures, allowing the company to comfortably honor both the face value of the bond and any accrued interest due to the bondholders. In most areas of the world, a corporate bond is likely to pay a higher rate of interest than bonds issued by local or national governments. However, it is important for the investor to note that the purchase of a corporate bond usually does not allow for the interest generated by the bond to be tax exempt. Many examples of the corporate bond include terms and conditions that allow for the issuance of inter
