Tuesday, September 8, 2009

Principal features of corporate notes and bonds

A distinction needs to be drawn here between notes and bonds. By convention, a note is corporate debt contract whose original maturity is five years or less; a bond carries an original maturity of more than five years. Both securities promise the investor an amount equal to the security‘s par value at maturity plus interest payments at specified intervals until maturity is reached. Since both securities have similar characteristics other than maturity, we will use the term bond to refer to both notes and bonds in the discussion that follows.
Corporate bonds are generally issued in units of $1,000 and earn income which, in most cases, is fully taxable to the investor. Each bond is accompanied by an indenture which is a contract listing the rights, privileges, and obligations of the borrower and the investor

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