What is a Corporate Bond?

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 ... more.

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.

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