Trading Corporate Bonds – Series 7 Exam

📈 Trading Corporate Bonds – Series 7 Exam Overview
Mastering the Mechanics of the Corporate Bond Market

Corporate bonds are a critical part of the fixed-income securities market and a key topic on the Series 7 Exam. Understanding how corporate bonds are issued, priced, traded, and taxed will help you succeed on exam day—and in your career as a registered representative.

🏢 What Are Corporate Bonds?

Corporate bonds are debt instruments issued by companies to raise capital.
When an investor buys a corporate bond, they are lending money to the issuer in exchange for periodic interest payments (called coupon payments) and the return of principal at maturity.

🔄 How Corporate Bonds Are Traded

Corporate bonds are typically traded in the over-the-counter (OTC) market, not on formal exchanges. Dealers quote prices based on:

• Interest rates and yield spreads
• Credit quality of the issuer
• Time to maturity
• Market liquidity

Bonds are quoted as a percentage of par value (usually $1,000). For example, a quote of 98.50 means the bond is selling for $985.

📊 Key Concepts to Know for the Series 7

1. Bond Pricing and Yield
   • Understand current yield, yield to maturity (YTM), and yield to call (YTC)
   • Know how premium and discount bonds behave when market rates change
2. Accrued Interest
   • Corporate bonds use a 30/360 day-count convention
   • Buyer pays the seller accrued interest from the last payment to the settlement date
3. Trade Settlement
   • Regular-way settlement is T+2 (trade date plus two business days)
4. Risks of Corporate Bonds
   • Credit/default risk
   • Interest rate risk
   • Liquidity risk
   • Call risk for callable bonds
5. Tax Treatment
   • Interest is taxed as ordinary income
   • Capital gains or losses occur if sold above or below cost basis
6. Callable and Convertible Bonds
   • Callable: Issuer can redeem early
   • Convertible: Can be exchanged for company stock

🧠 Exam Tips

• Be able to calculate accrued interest
• Understand the impact of interest rate movements on bond prices
• Know how to interpret bond quotations
• Expect scenario-based questions involving risk assessment and suitability

🎯 Ready to Master the Bond Market?

Corporate bonds are more than a chapter—they’re a core building block of your Series 7 knowledge base. Learn them inside and out with our full prep course at finra-exam-mastery.com. Lifetime access, expert instruction, and real exam practice.

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