Corporate and structured bonds give the right to repayment, at maturity, of the principal subscribed (unless insolvency of the issuer)
Question
Corporate and structured bonds give the right to repayment, at maturity, of the principal subscribed (unless insolvency of the issuer)
Solution
Yes, that's correct. Corporate and structured bonds do indeed provide the right to repayment of the principal amount invested at the time of maturity, unless the issuer becomes insolvent. Here's a step-by-step explanation:
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When an investor purchases a corporate or structured bond, they are essentially lending money to the issuer of the bond. The issuer could be a corporation or a government entity.
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The bond will have a specified maturity date, which is when the issuer is obligated to repay the principal amount that was initially invested.
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Throughout the life of the bond, the issuer will also make periodic interest payments to the investor. The interest rate is usually fixed and is specified at the time the bond is issued.
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If the issuer becomes insolvent, they may not be able to repay the principal amount or the interest payments. In such cases, the investor may lose some or all of their investment.
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However, if the issuer remains solvent, the investor has the right to receive the principal amount back at the time of maturity. This is one of the main reasons why bonds are considered a safer investment compared to stocks.
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