Corporate Bonds – Series 7 Exam
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
🏢 Corporate Bonds – Series 7 Exam Overview
What You Need to Know About Corporate Debt Securities
Corporate bonds are a major focus on the Series 7 Exam. As a registered representative, understanding how corporations raise capital through debt—and how those bonds are priced, traded, and taxed—is crucial to advising clients properly.
📘 What Are Corporate Bonds?
Corporate bonds are debt instruments issued by companies to finance operations, expansion, or refinancing. Investors lend money to the issuer in exchange for regular interest payments (coupon) and the return of principal at maturity.
📊 Key Features of Corporate Bonds
| Feature | Explanation |
|---|---|
| Par Value | Usually $1,000 per bond |
| Coupon Rate | Fixed annual interest, paid semiannually |
| Maturity | Varies—short (<5 yrs), intermediate (5–10 yrs), long (>10 yrs) |
| Quoted Price | As a percentage of par (e.g., 95 = $950) |
| Yield | Varies based on price, market rates, and risk |
| Taxation | Interest is taxed as ordinary income (federal, state, local) |
🔄 Types of Corporate Bonds
- Secured Bonds
- Backed by collateral
- Examples: Mortgage bonds, equipment trust certificates
- Unsecured Bonds (Debentures)
- Backed only by the issuer’s credit
- Higher risk = higher yield
- Convertible Bonds
- Can be exchanged for common stock
- Lower interest rate, but potential upside
- Callable Bonds
- Can be redeemed early by issuer
- Higher reinvestment risk for bondholders
📈 How Corporate Bonds Trade
- Traded Over the Counter (OTC)
- Quoted in points (1 point = 1% of par = $10)
- Accrued interest calculated using 30/360 convention
Regular-way settlement: T+2
Interest accrues up to but not including the settlement date
🧠 Must-Know Formulas for the Exam
- Current Yield = Annual Interest ÷ Market Price
- Yield to Maturity (YTM) and Yield to Call (YTC) – You’ll need to understand ranking of yields:
- Premium bond: Coupon > CY > YTM > YTC
- Discount bond: Coupon < CY < YTM < YTC
⚠️ Risks of Corporate Bonds
| Risk Type | Description |
|---|---|
| Credit Risk | Issuer may default on interest or principal |
| Interest Rate Risk | Prices fall when rates rise |
| Call Risk | Callable bonds may be redeemed early |
| Liquidity Risk | Thin trading in some corporate bonds |
🎯 Exam Tips for Series 7
- Be ready to calculate accrued interest
- Understand how price affects yield (inverse relationship)
- Know which bonds are more or less risky
- Expect scenario questions testing recommendation suitability
- Practice comparing secured vs. unsecured and callable vs. non-callable
🎓 Study Smart with Options
For detailed practice and real test prep, explore our full Series 7 course at finra-exam-mastery.com. We offer:
- Corporate bond tutorials
- Yield and pricing calculators
- Exam-style drills with explanations
- Lifetime access and structured study plans
Learn it. Apply it. Pass it. Corporate bonds made clear.