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Negotiable
Financial Instruments > This page
Corporate Debt Securities
(Source: Merrill Lynch)
Advantages
How Corporate Debt Securities Work To Meet Your Needs
The key difference between bonds and medium-term notes (Member
section)
Availability and flexibility (Member
section)
Liquidity (Member section)
Implementing the correct strategy (Member
section)
Advantages
Corporate debt securities give you a special combination of advantages.
These advantages include the following:
- Generally higher interest rates than those
of other fixed-income instruments, like certificates of deposit and
U.S. Treasury securities.
- A dependable source of attractive income,
paid either monthly or semiannually, that you can spend for current
expenses or reinvest for future needs.
- Relative protection of principal, subject
to credit quality, assuming you hold the securities until maturity.
- Diversity of choice among issuers, maturity
dates and quality ratings, increasing your flexibility to meet a broad
range of investment objectives.
You may find corporate
debt securities particularly attractive if you're investing through a
tax-deferred account, such as an Individual Retirement Account (IRA) or
a business retirement account.
How
Corporate Debt Securities Work To Meet Your Needs
Corporate debt securities are usually issued in $1,000 face or par amounts.
Each security is, in effect, an IOU. It represents the issuer's promise
to repay the loan face amount, with interest, in a stated period of time.
As an investor in corporate debt securities, you are a creditor of the
issuing company. You must be paid any principal and interest due before
stockholders receive any dividends. Because corporate debt securities
rank ahead of common stock, they are called senior securities.
Corporate debt securities
may be issued by corporations in all areas of business, such as public
utilities, industrial companies, finance companies, banks and transportation
companies.
Corporate debt securities
are referred to as fixed-income securities because they usually pay a
fixed rate of interest, known as the coupon rate. The overwhelming majority
of bonds pay interest semiannually, while medium-term notes may pay interest
either monthly or semiannually.
The three most significant
characteristics of a corporate debt security are the following:
- Quality--A determination of the issuer's
creditworthiness.
- Maturity--How long you have to wait before
the issuer repays principal to you.
- Yield--The return you expect to receive
on the money you invest.
The
key difference between bonds and medium-term notes
Corporate debt securities include bonds, the conventional type of corporate
debt security, and medium-term notes. The primary difference between the
two is ............
More
information is provided in the Member Area
Recommended further reading:
Treasury
Bills
Treasury Bills: How Marketable Treasury
Securities Really Work
Treasury Bills, Notes &Bonds
Treasury Bills: U.S. Treasury Securities
Books
on Financial Instruments
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