Corporate bond

Imagine you want to borrow some money from a friend. You promise to pay them back after a certain period of time, but you also offer something extra called interest. This means that in addition to returning the borrowed amount, you also give your friend some extra money as a thank you for lending you the money.

A corporate bond works in similar way. A company needs to borrow money, so it promises to pay back the borrowed amount to people who lend it the money. Like you and your friend, the company offers something extra called interest. In return for lending money to the company, investors get to earn money on top of their investment in the form of interest payments.

However, there are some differences between borrowing from a friend and lending money to a company. When a company borrows money from investors by issuing bonds, it can borrow a lot more money than it could borrow from a single friend. This is because the company can sell its bonds to many investors all over the world, whereas borrowing from a friend is limited to one person.

Further, when you borrow from a friend, you might not have to pay back the borrowed amount for a long time, and the interest rate may be flexible. Conversely, when you invest in a corporate bond, you know exactly how long you will be lending your money to the company and the interest rate you will get in return.

In summary, a corporate bond is a way for a company to borrow money by selling bonds to investors, who then earn interest payments on their investment over a set period of time.