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Interest Payments
Corporate bond interest is usually paid semiannually. Zero-coupon bonds pay
no periodic interest.
Forms of Issuance
Corporate bonds are issued in several forms:
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Registered bonds Some corporate bonds are issued
as certificates, with the owner?s name printed on them. There are no coupons
attached for the owner to submit for payment of interest. The issuer?s agent
or trustee sends the interest to the bondholder at the proper intervals and
forwards the principal at maturity.
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Bearer bonds These are bonds that have no name
printed on them and do have coupons attached. Anonymous and highly
negotiable, bearer bonds are virtually equivalent to cash. The Tax Reform
Act of 1982 ended the issuance of such bonds, but many remain in
circulation.
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Book-entry bonds These are bonds without
certificates. Just as registered bonds have largely supplanted bearer bonds,
book entry is replacing certificates as the prevailing form of issuance.
With book-entry securities, a bond issue has only one master, or global,
certificate, which is kept at a securities depository. The ownership of
book-entry bonds is recorded in the investor?s brokerage account. All
interest and principal payments are forwarded to the brokerage account.
Minimum Investment
For OTC bonds, the minimum investment is usually $5,000. Listed bonds are
issued and sold in $1,000 denominations.
Payment Terms
When you buy a corporate bond (or other security), you must make sure that
payment arrives at the broker?s office within three business days. Some
brokers require that you have your payment on deposit before they will
execute your purchase. If you sell a bond, you will receive the broker?s
payment in approximately three business days.
Sources of Information
If you are interested in a new or proposed bond offering, ask your broker
for a prospectus, the official offering statement the issuer must file with
the Securities and Exchange Commission. Detailed information on new bond
issues is provided as well by two of the rating agencies in their weekly
publications Moody?s Credit Perspectives and Standard & Poor?s Credit Week.
These two companies also publish information on existing bond issues. Check
the Mergent Bond Record and Moody?s Manuals, or Standard & Poor?s Bond Guide
and Standard & Poor?s Corporation Records. Most brokerage offices have these
publications, as do many libraries.
Marketability
How quickly and easily a particular bond can be bought or sold determines
its marketability. To the extent the term ?marketability? is used
interchangeably with ?liquidity,? it also implies that the price of the
security will not change much under normal market conditions. In general,
for a bond to enjoy high marketability, there must be a large trading volume
and a large number of dealers in the security.
Costs
Brokers often sell bonds from their firms? inventory, in which case
investors do not pay an outright commission. Rather, they pay a markup that
is built into the price quoted for the bond. If a broker has to go out into
the market to find a particular bond for a customer, a commission may be
charged. Each brokerage firm establishes its own markups and commissions,
which may vary depending on the size of the transaction and the type of bond
you are purchasing.
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