Corporate bonds are issued by corporations to raise money to
help run the company. Companies like Ford Motor, General Electric
and Caterpillar routinely issue bonds to raise capital for their
operations. Many investors buy corporate bonds because they tend
to pay a higher yields that other bonds. The higher yield offsets
the potential risk compared to other bonds and the local, state
and federal taxes that are due on interest payments and profits.
Like any bond issuer the corporation promises to pay the bond holder
all interest and principal on specified dates. But sometimes a corporation
experiences financial difficulties and can not make the payments.
This condition is called default. Therefore, unlike U.S. Treasury
securities that are the ultimate safe investment, some corporate
bonds are very risky.
Before you buy a corporate bond, check its credit
risk, call provisions and
liquidity.
Zero coupon corporate bonds are
available.
For more information about corporate bonds see What
are Corporate Bonds? at The
Bond Market Association.
Updated august 19, 2007.
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