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This article is from the What Every
Investor Should Know.
Corporate Bonds
Corporate bonds generally are issued in denominations of
$1,000. This is the face value of the bond, and is the amount the
company agrees to repay to the bondholder when the bond matures.
However, bonds may trade at a discount--an amount less than their face
value--depending upon current market conditions, the movement of
interest rates generally, and other factors. Some bonds are callable,
which means that the issuer can elect to buy them back from
holders--at the face amount--before the date of maturity. A bond may
be in bearer form, which means that it may be sold by any individual
who is in possession of the bond. Alternatively, a bond may be
registered, in which case the name of the holder is recorded with the
company or issuer of the bond. Some publicly held corporate bonds are
rated by several private rating agencies. Those agencies use a
combination of letters A through D to estimate the risk for
prospective investors. For example, AAA (or Aaa) is the highest
quality bond while C or D rated bonds are in default of payment. The
ratings are not meant to measure the attractiveness of the bond as an
investment, but rather how likely the principal will be paid if held
to maturity.
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