Debt Securities - Debt Securities/Bonds

Many different types of entities issue bonds in an effort to raise working capital. Corporations, and municipalities, along with the United States Government and US Government agencies, all issues bonds in order to meet their capital needs. A bond represents a loan to the issuer in exchange for its promise to repay the face amount of the bond known as the principal amount at maturity. On most bonds the investor receives semi-annual interest payments during the bond’s term. These semi-annual interest payments, along with any capital appreciation or depreciation at maturity, represent the investor’s return. A bondholder invests primarily for the interest income that will be generated during the bonds term.

Corporate Bonds

Corporations will issue bonds in an effort to raise working capital to build and expand their business. Corporate bondholders are not owners of the corporation; they are creditors of the company. Corporate debt financing is known as leverage financing because the company pays interest only on the loan until maturity. Bondholders do not have voting rights so long as the company pays the interest and principal payments in a timely fashion. If the company defaults, the bondholders may be able to use their position as creditors to gain a voice in the company’s management. Bondholders will always be paid before preferred and common stockholders in the event of liquidation. Interest income received by investors on corporate bonds is taxable at all levels, federal, state and local.

Types Of Bond Issuance
Related Articles
  1. Professionals

    Series 99

    FINRA/NASAA Series 99 Exam Guide
  2. Professionals

    Series 24

    FINRA/NASAA Series 24 Exam Guide
  3. Professionals

    Becoming A Registered Investment Advisor

    To become a registered investment advisor requires specific licensing, qualifications and regulations, but the greater freedom may be worth it.
  4. Term

    Understanding the Maintenance Margin

    A maintenance margin is the minimum amount of equity that must be kept in a margin account.
  5. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  6. Professionals

    Is a Google Robo-Advisor on the Horizon?

    It's possible that Google is looking to get into the robo-advisor business, either as a new venture or as a way to provide more benefits to employees.
  7. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  8. Professionals

    Top Strategies on How to Become a Stock Broker

    Gunning to be a stock broker and want an edge? Here's some veteran advice.
  9. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  10. Professionals

    Understanding Series 63

    Series 63 is a securities license that entitles the holder to sell securities in a particular state.
RELATED TERMS
  1. Series 6

    A securities license entitling the holder to register as a limited ...
  2. Comprehensive Automated Risk Data ...

    The Comprehensive Automated Risk Data System (CARDS) is an initiative ...
  3. Corporate Financing Committee

    A regulatory group that reviews documentation that is submitted ...
  4. Series 79

    A examination to ensure a candidate is qualified to become a ...
  5. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  6. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
RELATED FAQS
  1. How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. ... Read Full Answer >>
  2. I have a CFA designation. Do I qualify for any exemptions from FINRA licensing exams?

    Unfortunately, a CFA charter does not qualify you for any FINRA exam exemptions. Read Full Answer >>
  3. How can I find out if my employer is a member of FINRA?

    To find out if your employer is a member of the Financial Industry Regulatory Authority or FINRA (previously the National ... Read Full Answer >>
  4. Am I qualified once I complete my FINRA certification exam?

    Even if you have completed your Financial Industry Regulatory Authority or FINRA (previously the National Association of ... Read Full Answer >>
  5. How does a broker decide which customers are eligible to open a margin account?

    Brokers have the sole discretion to determine which customers may open margin accounts with them, although there are regulations ... Read Full Answer >>
  6. What are some of the major regulatory agencies responsible for overseeing financial ...

    There are a number of agencies assigned to regulate and oversee financial institutions and financial markets, including the ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!