Principles of Managerial Finance, 15th Edition

6.2 Government and Corporate Bonds

1. LG2

2. LG3

When governments and corporations need to borrow money, they often do so by issuing bonds. In addition to the Treasury bills, notes, and bonds issued by the federal government, state and local governments issue bonds known as municipal bonds. A corporate bond is a long-term debt instrument indicating that a corporation has borrowed a certain amount of money and promises to repay it in the future under clearly defined terms.

The features of government and corporate bonds are similar. Most bonds are issued with maturities of 10 to 30 years and with a par value, principal, or face value, of $1,000. A bond’s coupon rate represents the percentage of the bond’s par value that will be paid to bondholders ...