A corporate bond is a debt obligation through which investors lend money to a corporation. For compensation, the corporation pays interest on the principal and typically returns the principal when the bond comes due or matures, according to the U.S. Securities and Exchange Commission. A corporate bond that matures in 10 years is a medium-term bond.
Bonds are classified based on maturity. Short-term bonds mature in less than three years. Medium-term bonds mature in four to 10 years, while longer-term bonds mature in more than 10 years. Longer-term bonds commonly offer higher interest rates but also have more risks, notes the U.S. Securities and Exchange Commission. In the U.S. bond market, corporate bonds are the largest part. U.S. Treasury bonds, other U.S. government bonds and municipal bonds make up the remainder.
The maturity term of a corporate bond affects the purchase price and redemption value. There is a greater difference between the two the further a bond is from maturity, states Morningstar. The rate for the interest payment varies by bond and is set at the time it is issued. If a bond sells before maturity, the seller does not receive the full principal amount or any remaining interest payments. At this point, the secondary market establishes the bond's price, which may be less than the amount of principal and remaining interest payments, explains the Financial Industry Regulatory Authority.