Trading Corporate Bonds – Series 7 Exam

Trading Corporate Bonds – Series 7 Exam
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💼 What Are Corporate Bonds?
Corporate bonds are debt securities issued by companies to raise capital. When an investor buys a corporate bond, they’re lending money to the issuer in exchange for interest payments (coupon) and a promise to repay the principal at maturity.

In the Series 7 exam, understanding how these bonds are traded and quoted is essential.

📊 Key Concepts You Need to Know

1. Quotation Format

Corporate bonds are quoted as a percentage of par value ($1,000).

• Example: A quote of 98.50 = $985
• Example: A quote of 102.25 = $1,022.50

2. Types of Corporate Bonds

• Secured Bonds (e.g., mortgage bonds, equipment trust certificates)
• Unsecured Bonds (e.g., debentures, subordinated debentures)
• Convertible Bonds (can be exchanged for shares of stock)

Understanding the difference in credit risk and priority in liquidation is key for exam questions.

3. Trading Characteristics

• Traded over-the-counter (OTC) – not on an exchange
• Quoted in points (each point = 1% of par)
• Usually traded in blocks of $1,000 or more
• Settlement: T+2 (trade date plus two business days)

4. Accrued Interest

Corporate bonds typically pay interest semiannually and use a 30/360-day count convention for calculating accrued interest.

You’ll need to know:
➡️ How to calculate accrued interest for a trade
➡️ How accrued interest affects the transaction price

5. Yield Terms to Remember

• Nominal Yield – stated coupon
• Current Yield = Annual Interest ÷ Market Price
• Yield to Maturity (YTM) – total return if held to maturity
• Yield to Call (YTC) – return if bond is called early

👉 The Series 7 often asks you to compare yields and identify relationships when a bond is trading at a discount or premium.

🔍 Risk Factors Covered on the Exam

• Credit Risk (default risk)
• Interest Rate Risk
• Call Risk
• Liquidity Risk
  Understanding how these affect pricing and suitability is key to passing.

📘 Pass Series 7 with Confidence
We break down corporate bond trading with visuals, sample questions, and practical strategies inside our full Series 7 course.

👉 Learn more at: https://finra-exam-mastery.com

🎯 Understand the trade. Ace the test.