What Is a Corporate Bond?

A corporate bond is a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate. When the bond expires, or "reaches maturity," the payments cease and the original investment is returned.

The backing for the bond is generally the ability of the company to repay, which depends on its prospects for future revenues and profitability. In some cases, the company's physical assets may be used as collateral.

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Benefits Of Corporate Bonds

  • Less Vulnerable

    They are less vulnerable to inflation and interest rate increases than government bonds due to generally shorter periods to redemption

  • True Potential

    They have higher growth potential than government bonds

  • Low Risk

    They are less risky than equities or property

  • High Diversification

    They are a very useful diversifier for low-medium, medium and medium-high risk portfolio

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