What is a corporate bond? what are the pros and con's? What is callable Bond? what...

What is a corporate bond? what are the pros and con's?

What is callable Bond? what are the pros and con's?

Expert Solution

Corporate bond is a bond issued by a company to rasie capital.

Buyer of a corporate bond is a lender and seller of a corporate bond is a borrower.

Pros of Corporate bond

1) Less volatile as compared to stocks of the company.

2) The corporate bond market is liquid

Cons of Corporate bond

1) Riskier than the Government bond.

2) They fall in value if the interest rate rises.

Callable bond is a bond which gives the right to the issuer to redeem the bond before the maturity or we can say that it allows the borrower to pay its debt before the maturity date.

Pros of Callable bond

1) If the interest rate falls, the issuer can pay off the debt by exercising it's right.

2) The investor(lender) gets a higher coupon rate as it is providing a right to the borrower.

Cons of Callable bond

1) The borrower has to pay a higher coupon rate for this bond.

2) The investor will have to invest at a lower rate than what he was getting at this bond if the issuer exercises the rights.

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