Business Definition for: corporate bond
corporate bond
debt instrument issued by a private corporation, as distinct from one issued by a government agency or a municipality. Corporates typically have four distinguishing features: (1) they are taxable; (2) they usually have a par value of $1,000; (3) they have a term maturity-which means they come due all at once-and are paid for out of a sinking fund accumulated for that purpose; (4) they are traded on major exchanges, with prices published in newspapers.
See also
bond
,
municipal bond
corporate bond
debt instrument issued by a private corporation, as distinct from one issued by a government agency or a municipality. Corporate bonds typically have four distinguishing features: (1) they are taxable; (2) they have a par value of $1,000; (3) they have a fixed maturity; (4) they are traded on major exchanges, with prices published in newspapers.
Related Terms:
- written promise by a company, government, or other institution to pay the face amount at the maturity date. Periodic interest payments are usually required. Bonds are typically stated in $1000 denominations. Bonds may be secured by collateral or unsecured (debenture). A registered bond has the name of the owner on the issuer's records, whereas the holder of a bearer bondpresents coupons for interest payments. sinking fundbonds require the company to make annual deposits to a trustee. At maturity, the amount in the sinking fund (principal plus interest) is sufficient to pay the face of the bond. From the company's perspective, a bond issue has several advantages over a stock issue. Interest expense is tax deductible, whereas dividend payments are not. During inflation, debt is paid back in cheaper dollars. When bonds are issued at face value, the entry is to debit cash and credit bonds payable. When bonds are issued at a discount, such as with zero-coupon bonds, the entry is to debit cash and bond discount and credit bonds payable. The entry to record the interest each period is to debit interest expense and credit cash.See alsobond conversion;bond discount;bond premium.
- cash or property given to assure performance (i.e., contractor depositing a performance bond on a construction project to be completed by a specified date).
- type of insurance compensating employer for employee dishonesty.
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Copyright © 2007, 2000, 1997, 1987, by Barron's Educational Series, Inc. Reprinted by arrangement with Publisher.
