What is a corporate bond?• It is a debt that corporations issue to raise money inorder to expand its business. The company is to payinterest during the lifetime of the bond in addition to themoney borrowed, to the holder.• Corporate bonds represent a promise to pay bondholdersa fixed sum of money (called the bond’s principal, or paror face value) at a future maturity date, along withperiodic payments of interest (called coupons).• An indenture is contract between an issuer of bonds andthe bondholder stating the time period beforerepayment, amount of interest paid and the amount ofmoney that is to be repaid.
Corporate Bonds vs. Common StockCorporate Bonds Common Stock-Represents a creditor’sclaim on thecorporation-Promised cash flows(coupons and principal)are stated in advance-Mostly callable(repayable on demand)-Represents anownership claim on thecorporation-Amount and timing ofdividends may changeat any time-Almost never callable
How do you buy a corporate bond?• You can buy corporate bonds from public utilitycompanies, transportation companies, industrialcorporations, financial service companies, andconglomerates (which includes a combination ofmajor corporate businesses).• Most corporate bonds trade in the over-the-counter(OTC) market. This market does not exist in a centrallocation. It is made up of bond dealers and brokersfrom around the country who trade debt securitiesover the phone or electronically. Market participantsare increasingly using electronic transaction systemsto assist in the trade execution process.
Advantages of Corporate Bonds• Bonds give higher interest rates compared to short-term investments.• Corporate bonds provide an opportunity to choosefrom a variety of sectors, structures and credit-quality characteristics to meet your investmentobjectives.• Corporate bonds are considered safer than commonstocks, because in the corporate structure of acompany, bondholders receive priority overstockholders in the event of a corporate bankruptcy.
Disadvantages of Corporate Bonds• Selling bonds before they’re due may result in a loss, adiscount.• If the issuer of the bond declares bankruptcy, you may losemoney.• The prices of bonds are affected by fluctuations in interestrates within the economy. Bond prices move inversely tointerest rates; when interest rates rise, bond rates fall and viceversa.• When interest rates decline, making it more favorable for theissuer to refinance their debts. If this occurs, the investorwould be forced to redeem their bond and replace it with anew one that potentially would have lower coupon rates. Foran investor who is relying on this income for their lifestyle, thiscan be a substantial disadvantage.
Are corporate bonds doing well inthis economy?• Corporate bonds are successful in our currenteconomy. According to Bloomberg, corporatebonds are rallying for the fourth straightquarter, the longest streak since 2004,extending a record advance as 72 percent ofcompanies beat analysts’ earningsexpectations.
Are corporate bonds best for you?• People who want steady income from theirinvestments, while preserving their principal,may include corporate bonds in theirportfolios.• If you must sell a bond before maturity, inmost instances you can do so easily andquickly because of the size and liquidity of themarket.
Compumatrix 10K Bond2 Years Maturity• One-time Cash Lump Sum– $11,025.002 Years Maturity• 24 consecutive months– $1,000.00– Plus $10,000 on the 24thmonth– OR call off anytime with$10,000.00 Cash
Compumatrix 10K BondEarly Redemption• 10% Penalty• Payable in CDC