Corporate Bonds¶
Corporate bonds are financial instruments issued by companies to raise capital for various purposes, such as expanding operations, acquiring assets, or funding business growth. These bonds represent debt obligations of the issuing company, and investors who purchase them become creditors of the company.
Key characteristics of corporate bonds include:
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Debt Obligations: Corporate bonds are debt securities, meaning the issuing company borrows money from investors and agrees to repay the principal (face value) of the bond on a specified maturity date.
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Interest Payments: Until the maturity date, the issuing company typically makes regular interest payments to bondholders. These interest payments are usually paid semiannually and are based on a stated interest rate.
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Non-Ownership: Owning a corporate bond does not grant you ownership rights in the company, unlike holding the company's stock (equity). Bondholders are creditors of the company and do not participate in the company's decision-making processes.
Corporate bonds serve as an essential tool for companies to secure long-term financing from the public and institutions. They allow companies to access funds for various capital-intensive projects and business operations.
It's important to note that there are distinctions between corporate bonds and other types of bonds, such as debentures:
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Corporate Bonds: These bonds are issued by large corporations, financial institutions, and government agencies. They are typically backed by collateral or physical assets, providing additional security to bondholders.
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Debentures: Debentures are also debt instruments, but they are issued by private companies. Unlike corporate bonds, debentures are not backed by collateral or physical assets. Instead, they rely on the creditworthiness and financial strength of the issuing company.
Investors in corporate bonds assess the creditworthiness of the issuer and the specific terms of the bond, including interest rates, maturity dates, and any covenants or conditions attached to the bond issuance. Corporate bonds can be an attractive investment option for those seeking regular income through interest payments while preserving their capital investment.
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