When a corporation, such as Apple, issues and offers bonds for sale, this represents a method of raising capital from investors. The corporation is effectively borrowing money, and the bond acts as a formal promise to repay the principal amount at a specified future date, known as the maturity date. Furthermore, the bond obligates the corporation to make periodic interest payments, called coupon payments, to the bondholders over the life of the bond. For example, if Apple issues a bond with a face value of $1,000, a 5% coupon rate, and a maturity of 10 years, it agrees to pay $50 in interest annually to the bondholder until the bond matures and the $1,000 principal is repaid.
This activity allows the corporation to fund various initiatives, including research and development, capital expenditures like building new facilities, mergers and acquisitions, or simply to refinance existing debt. Issuing bonds can be advantageous compared to equity financing (selling stock) as it typically does not dilute existing ownership and provides a fixed cost of capital. Historically, corporate bond issuance has played a crucial role in financing economic growth, providing a stable source of funds for large-scale projects and enabling companies to expand their operations. The yield required by investors reflects market conditions and the creditworthiness of the issuer, and is influenced by prevailing interest rates, inflation expectations, and perceived risk.
