Corporate Bonds – Series 7 Exam

💵 Corporate Bonds – Series 7 Exam

Corporate bonds are a major topic on the Series 7 exam, testing your knowledge of fixed-income instruments issued by corporations to raise capital. As a Series 7 candidate, you must understand how these bonds work, their risks, how they trade, and how to calculate yields and pricing.

🏢 What Are Corporate Bonds?

Corporate bonds are debt securities issued by private or public companies. When an investor buys a corporate bond, they’re lending money to the issuer in exchange for:

• Regular interest payments (coupon)
• Full return of principal at maturity

These are typically issued in $1,000 denominations, with maturities ranging from 1 to 30 years.

🧾 Key Features of Corporate Bonds

📈 Types of Corporate Bonds

🔒 Secured Bonds

• Mortgage Bonds – Backed by real estate assets
• Collateral Trust Bonds – Backed by stocks or bonds held in trust
• Equipment Trust Certificates – Common in transportation, secured by physical equipment

💼 Unsecured Bonds

• Debentures – Backed only by issuer’s creditworthiness
• Subordinated Debentures – Lower claim in liquidation than regular debentures
• Income Bonds – Pay interest only if the company earns enough income

📉 Risks of Corporate Bonds

• Credit Risk – Possibility of issuer defaulting
• Interest Rate Risk – Bond prices fall when interest rates rise
• Call Risk – Bond may be redeemed early, limiting income
• Liquidity Risk – Some corporate bonds are thinly traded
• Reinvestment Risk – Coupons may be reinvested at lower rates

💡 Series 7 Concept Focus

You’ll be tested on:

• How bond prices and yields move in opposite directions
• Current yield, yield to maturity (YTM), and yield to call (YTC)
• Premium vs. Discount bonds and what yield is highest/lowest
• Trading terminology (basis, accrued interest, settlement)
• How credit ratings (e.g., Moody’s, S&P) affect risk perception
• Suitability of corporate bonds for different investor profiles

🧠 Sample Practice Question

A corporate bond with a 6% coupon is trading at 94. What is the current yield?
A. 5.64%
B. 6.00%
C. 6.38%
D. 6.52%

✅ Correct Answer: C
Current Yield = Annual Interest / Market Price = $60 / $940 = 6.38%

🚀 Get Bond-Savvy Before Exam Day

Master bond pricing, risk, and suitability with targeted Series 7 prep at
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✔ Lifetime access to fixed-income tutorials
✔ Flashcards and bond yield calculators
✔ Full-length practice exams and yield comparison drills

Know the math. Understand the risks. Pass the Series 7.