Skip to content

CFA Level I Exam · Fixed-Income Markets for Corporate Issuers

Corporate Bonds: Features, Maturities and Structures

Updated 7 October 2026 · Fact-checked

A corporate bond is a debt security issued by a company that pays interest and returns principal under a legal contract. To solve questions, identify the maturity (notes are shorter, bonds longer), the coupon type, how principal is repaid (bullet or amortizing), and the claim ranking (secured above unsecured).

Understand Corporate Bonds: Features, Maturities and Structures

A corporate bond is a loan from investors to a company. The company, the issuer, promises to pay interest (the coupon) and to repay the principal (face value) on stated dates. The contract is called the indenture. It sets the terms, the covenants and who has a claim on what.

Maturity is the date the final principal is due. Corporate debt is often split by original maturity. Notes usually have shorter lives, and bonds usually have longer lives. The cut-off is a market convention, not a hard rule. Debt maturing within one year is often called short-term and may sit in the money market, such as commercial paper. A bullet bond pays the whole principal at maturity. An amortizing bond repays part of the principal with each payment. A bullet leaves a large refinancing need at the end. An amortizing bond lowers the outstanding balance over time, so refinancing risk and credit exposure fall. There is also a partially amortizing bond, which repays some principal over time and a balloon payment at maturity.

Coupon structures vary. A fixed-rate bond pays the same coupon each period. A floating-rate note (FRN) pays a reference rate plus a spread, for example a benchmark rate + 1.20%. The coupon resets each period, so the price stays near par when rates move, as long as the spread still fits the issuer's credit risk. A zero-coupon bond pays no coupon and is issued at a discount. Other types step up the coupon over time, or link it to inflation or credit rating.

Creditors rank in a set order if the issuer fails. Secured debt is backed by specific collateral, such as property or equipment. If the issuer defaults, secured holders can claim that asset first. Unsecured debt has only a general claim on the issuer's remaining assets. Within unsecured debt, senior unsecured ranks ahead of subordinated (junior) debt. This is the seniority of claims, or priority of claims. In general, higher-ranking debt expects higher recovery and so a lower yield. Actual recoveries can still differ from the stated ranking. Covenants add protection. Affirmative covenants require actions, and negative covenants restrict actions such as taking on extra debt.

Key formulas to remember

Typical ranking of claims in default
Secured senior > Unsecured senior > Subordinated (junior) > Equity
Higher rank usually means higher expected recovery and lower yield, all else equal.
Floating-rate note coupon
Coupon rate = Reference rate + Spread
Reference rate resets each period. The spread is fixed at issue, unless the terms say otherwise.
Bullet bond cash flows
Coupons each period; full principal at maturity
Final payment is the largest cash flow.
Fully amortizing bond
Each payment = interest + principal repayment; balance reaches zero at maturity
Interest falls as the balance falls.
Partially amortizing bond
Periodic payments (interest + some principal) + balloon payment at maturity
The balloon equals the remaining balance.

How to solve Corporate Bonds: Features, Maturities and Structures questions

Use this order for any question on corporate bond features.

  1. 1Read what is asked: maturity type, coupon type, repayment pattern, or claim ranking.
  2. 2Mark the maturity. Short original life suggests notes or money market debt. Longer life suggests bonds.
  3. 3Identify the coupon: fixed, floating (reference rate + spread), zero, or step-up.
  4. 4Identify the repayment: bullet, fully amortizing, or partially amortizing with a balloon.
  5. 5Identify the collateral and rank: secured, senior unsecured, or subordinated.
  6. 6Link the feature to risk. Bullet means refinancing risk. Floating means price near par but interest income varies. Lower rank means higher loss in default.
  7. 7Eliminate the two options that contradict the contract terms, then choose.

Quickest way: Three-label shortcut

When to use it: Use it for any qualitative question with three options.

  1. Label the bond with three words: coupon type, repayment type, rank.
  2. Ask which risk each label creates: rate risk, refinancing risk, or recovery risk.
  3. Drop options that attach the wrong risk to a label, such as saying a bullet bond lowers refinancing risk.
  4. Choose the option that follows the contract terms.

Common mistakes in Corporate Bonds: Features, Maturities and Structures

  • Saying a floating-rate note has no risk because its price always equals par.

    Students remember that FRNs have low interest rate risk and stretch it.

    Fix: The price stays near par only if the spread still matches the issuer's credit risk. If credit quality worsens, the price can fall below par.

  • Treating a bullet bond as one with no coupons.

    Bullet sounds like a single payment.

    Fix: A bullet pays regular coupons. Only the principal is paid in one lump sum at maturity.

  • Confusing secured with senior.

    Both words suggest strong claims.

    Fix: Secured refers to specific collateral. Senior refers to ranking among unsecured claims. Secured debt has a claim on pledged assets first.

  • Thinking subordinated debt ranks above unsecured debt.

    Students mix 'subordinated' with 'senior'.

    Fix: Subordinated is junior. It is paid after senior debt, so it has lower recovery and offers a higher yield.

  • Assuming an amortizing bond has a final large payment.

    Students mix it up with a balloon structure.

    Fix: A fully amortizing bond repays all principal through its payments, so there is no lump sum. Only a partially amortizing bond has a balloon.

Worked examples

Example 1

A company issues a 5-year bond with a face value of 100. It pays annual coupons and repays the full principal at maturity. Which describes the structure? A. Fully amortizing B. Bullet C. Partially amortizing with a balloon

Show the solution
  1. Check the principal repayment: the full principal is repaid only at maturity.
  2. A fully amortizing bond repays principal through its payments, so A is wrong.
  3. A partially amortizing bond repays some principal early, so C is wrong.
  4. Coupons plus all principal at maturity define a bullet bond.

Answer: B. Bullet

Example 2

A firm has three debt issues: a senior unsecured bond, a subordinated bond, and a bond secured by a factory. Which statement is most consistent with seniority of claims? A. Subordinated debt ranks ahead of senior unsecured debt B. Secured debt has first claim on its pledged collateral C. Senior unsecured debt has first claim on the factory

Show the solution
  1. Subordinated debt is junior and is paid after senior unsecured debt, so A is wrong.
  2. Secured debt is backed by specific collateral, and holders can claim that asset first, so B is consistent with the ranking.
  3. The factory is pledged to the secured bond, so senior unsecured holders do not have first claim on it. C is wrong.

Answer: B. Secured debt has first claim on its pledged collateral

Exam tips

  • Questions test definitions. Learn the words bullet, amortizing, balloon, secured, senior and subordinated precisely.
  • Match a feature to its risk. Bullet means refinancing risk, and low rank means higher loss in default.
  • With three options, find the two that misuse a term. Check each option against the contract wording in the stem.
  • For FRNs, watch for the credit spread clue. Price near par holds only if the spread is still fair.
  • Do not spend more than about 90 seconds. These questions are usually quick if you know the terms.

Practice questions from Fixed-Income Markets for Corporate Issuers

Corporate Bonds: Features, Maturities and Structures in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Corporate Bonds: Features, Maturities and Structures: frequently asked questions

What is the difference between a corporate note and a corporate bond?

The difference is mainly maturity. Notes usually have shorter original lives and bonds longer ones. The dividing line is a market convention, so rely on the question's wording.

What is the difference between a bullet and an amortizing bond?

A bullet bond repays all principal at maturity. An amortizing bond repays part of the principal with each payment. A partially amortizing bond leaves a balloon payment at the end.

Why does secured debt usually have a lower yield than unsecured debt?

Secured debt has a claim on specific collateral, so expected recovery in default is usually higher. Lower loss risk usually means investors accept a lower yield, all else equal.

How is a floating-rate note different from a fixed-rate bond?

An FRN pays a reference rate plus a spread and the coupon resets. A fixed-rate bond pays the same coupon throughout. So a fixed-rate bond's price is more sensitive to interest rate changes.