What does a corporate bond represent?

A corporate bond represents a loan made by an investor to a corporation. When an investor purchases a corporate bond, they are effectively lending money to the issuing company in exchange for periodic interest payments, known as coupon payments, and the return of the bond's face value when it matures. This arrangement creates a creditor-debtor relationship; the investor is providing capital to the corporation, which is obligated to repay that amount at a specified future date. It is important to realize that owning a corporate bond does not confer ownership in the company, as is the case with stocks, nor does it provide a direct share of company profits. Instead, the bondholder's return comes from the interest payments and the eventual repayment of the principal. This understanding captures the essence of how corporate bonds function within the broader landscape of finance and investment.