What is a corporate bond?

A corporate bond is a debt security issued by a corporation to raise capital. When investors purchase corporate bonds, they are essentially lending money to the issuing corporation for a specified period of time. In return, the corporation agrees to pay interest to the bondholders at regular intervals, as well as to repay the principal amount when the bond matures.

This definition emphasizes the nature of corporate bonds as a means for corporations to secure funding for various purposes, such as expansion, operations, or refinancing existing debt. Unlike government bonds that are issued by governmental entities, corporate bonds represent a loan to a private corporation, making them distinct in the realm of investment options. Furthermore, corporate bonds are categorized under debt securities rather than equity securities, which involve ownership stakes in companies, further clarifying their role in the financial markets.