We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is a Corporate Bond Equivalent?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 5,629
Share

Corporate bond equivalents are calculations that have to do with the comparative return associated with a corporate bond. The usual process is to compare the rate of return on a bond that offers interest payments on a semi-annual basis to the rate of return on a bond that provides interest payments on an annual basis. Using a basic formula to convert the two different rates of return into similar amounts of interest earned for the same period can help the bond holder to understand which bond is producing a higher return for the money invested.

In most cases, the corporate bond equivalent process requires that the initial investment in each of the two bonds under consideration be the same or very similar. This helps to simplify the process of comparing the rate of return earned from each bond. When the initial investment is the same amount, then the focus shifts to the rate of interest associated with each of the corporate bonds, and the schedule for the payment of that interest.

Many types of bonds provide interest payments on an annual or semi-annual basis. When attempting to determine the corporate bond equivalent existing between two given corporate bonds, it is necessary to make sure the same time period is used for comparison. For example, if Bond A provides interest payments on a semi-annual basis while Bond B provides interest payments on an annual basis, the simplest way to get a quick and rough corporate bond equivalent is to add the two payments received in the same calendar year for Bond A to the single payment received for Bond B during the same year. While this is not a complete corporate bond equivalent, it does represent a figure that will suffice in most situations.

There are additional factors that may be addressed and allow the calculation of the corporate bond equivalent to be further refined. Making allowances for small differences in the initial investment in each of the two bonds is one consideration. Attempting to find an average of the two rates of interest may also be employed as part of the comparison strategy. However, these factors are usually reserved for situations where the return on bonds is being projected before a purchase is actually made. When looking for a rough comparison between bonds already purchased, the corporate bond equivalent more commonly is a simple reconciliation between the frequency of issued interest payments and the actual return received for a cited period.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-is-a-corporate-bond-equivalent.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.