2. What is a corporate bond?
• It is a debt that corporations issue to raise money in
order to expand its business. The company is to pay
interest during the lifetime of the bond in addition to the
money borrowed, to the holder.
• Corporate bonds represent a promise to pay bondholders
a fixed sum of money (called the bond’s principal, or par
or face value) at a future maturity date, along with
periodic payments of interest (called coupons).
• An indenture is contract between an issuer of bonds and
the bondholder stating the time period before
repayment, amount of interest paid and the amount of
money that is to be repaid.
3. Corporate Bonds vs. Common Stock
Corporate Bonds Common Stock
-Represents a creditor’s
claim on the
corporation
-Promised cash flows
(coupons and principal)
are stated in advance
-Mostly callable
(repayable on demand)
-Represents an
ownership claim on the
corporation
-Amount and timing of
dividends may change
at any time
-Almost never callable
4. How do you buy a corporate bond?
• You can buy corporate bonds from public utility
companies, transportation companies, industrial
corporations, financial service companies, and
conglomerates (which includes a combination of
major corporate businesses).
• Most corporate bonds trade in the over-the-counter
(OTC) market. This market does not exist in a central
location. It is made up of bond dealers and brokers
from around the country who trade debt securities
over the phone or electronically. Market participants
are increasingly using electronic transaction systems
to assist in the trade execution process.
5. Advantages of Corporate Bonds
• Bonds give higher interest rates compared to short-
term investments.
• Corporate bonds provide an opportunity to choose
from a variety of sectors, structures and credit-
quality characteristics to meet your investment
objectives.
• Corporate bonds are considered safer than common
stocks, because in the corporate structure of a
company, bondholders receive priority over
stockholders in the event of a corporate bankruptcy.
6. Disadvantages of Corporate Bonds
• Selling bonds before they’re due may result in a loss, a
discount.
• If the issuer of the bond declares bankruptcy, you may lose
money.
• The prices of bonds are affected by fluctuations in interest
rates within the economy. Bond prices move inversely to
interest rates; when interest rates rise, bond rates fall and vice
versa.
• When interest rates decline, making it more favorable for the
issuer to refinance their debts. If this occurs, the investor
would be forced to redeem their bond and replace it with a
new one that potentially would have lower coupon rates. For
an investor who is relying on this income for their lifestyle, this
can be a substantial disadvantage.
7. Are corporate bonds doing well in
this economy?
• Corporate bonds are successful in our current
economy. According to Bloomberg, corporate
bonds are rallying for the fourth straight
quarter, the longest streak since 2004,
extending a record advance as 72 percent of
companies beat analysts’ earnings
expectations.
8. Are corporate bonds best for you?
• People who want steady income from their
investments, while preserving their principal,
may include corporate bonds in their
portfolios.
• If you must sell a bond before maturity, in
most instances you can do so easily and
quickly because of the size and liquidity of the
market.
9. Compumatrix 10K Bond
2 Years Maturity
• One-time Cash Lump Sum
– $11,025.00
2 Years Maturity
• 24 consecutive months
– $1,000.00
– Plus $10,000 on the 24th
month
– OR call off anytime with
$10,000.00 Cash
