What do corporate bonds represent?

Corporate bonds represent a form of debt in which an investor loans money to a corporation for a specified period at a fixed interest rate. When a corporation needs to raise capital, it can issue bonds to the public, effectively borrowing funds that it agrees to repay, along with interest, over time. This arrangement allows the company to finance various projects or operational costs without giving up ownership stakes in the business.

In the context of corporate finance, bonds are a common way for companies to "leverage" their operations, enabling them to invest in growth opportunities while spreading the risk among a broader range of investors. Investors who purchase these bonds are essentially lending money to the corporation, making them creditors rather than owners. This distinction is crucial for understanding the nature of corporate bonds and the financial relationships they establish.