Corporate bonds are debt instruments that companies issue in order to raise finance through debt. The bonds are investments for investors who want to receive a steady coupon interest payment after every period. Companies need money for expansion and they have two sources. One is equity and the other is through debt finance and one of the debt finance options is corporate bonds.
The holder of a corporate bond has a right to receive the periodic interest payments that is effectively calculated on the par value of the bond that is normally $1000. The interest rate of the coupon depends on the level of default risk that the company has. The company bonds are rated by reputed credit rating organizations and each company bond is given a rating based on the default risk of that company. Higher the default risk, lower the credit rating and a higher coupon rate will be offered for that bond.
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