Corporate Debt & Bond Quotes

Reconstruction note: this page’s text extraction flattens fractions (e.g. “95 2 1” and “8 1”). All fractions below were reconstructed from the page’s own worked examples — 95½, ⅛ = 0.125, ¾ = 0.75, 4/8 reduced to ½ — and verified against the dollar answers the page gives ($955, $1,021.25, $987.50).

Why corporations borrow

Corporations borrow large amounts of money for many reasons. Real-world examples from the text:

Company	Amount	Purpose
Amazon	$10 billion	General corporate purposes
Disney	$6 billion	Assist company finances during COVID-19
AT&T	$12.5 billion	Refinance old bonds to a lower rate

When corporations need money, they typically raise capital in one of two ways: equity and debt.

Equity vs. debt financing

	Equity (selling stock)	Debt (issuing bonds)
Main benefit	The capital raised doesn’t have to be repaid	The corporation doesn’t give up ownership and can generally run the company as it sees fit
Voting	Giving up ownership can mean shareholders must approve many corporate decisions	Bondholders (lenders) don’t vote on business operations unless the bond defaults
Main drawback	Giving up ownership	The corporation must repay the borrowed funds with interest — even a low interest rate can mean large dollar payments when the borrowing amount is large

If a default occurs, bondholders may influence certain post-bankruptcy decisions (for example, whether the company liquidates or continues operating).

For example, in the Amazon offering cited above, part of the offering included a 3-year, $1 billion note issued at an interest rate of 0.4%. Amazon broke records for the lowest interest rate a corporation has ever borrowed at, which reflects how strong a company Amazon is. Still, 0.4% interest on $1 billion means Amazon pays $4 million in interest each year.

Types of corporate debt covered in this chapter

Commercial paper
Debentures
Guaranteed bonds
Income bonds
Mortgage bonds
Equipment trust certificates
Collateral trust certificates

Each type comes with its own benefits and risks, which we’ll cover throughout this chapter.

Liquidation priority

We originally discussed the liquidation priority of corporations in the common stock chapter. If a company is forced to liquidate its assets, it will distribute the liquidation proceeds in this order:

Liquidation priority (memorize the order):

#	Claimant	Who falls here
1	Unpaid wages	Employees owed pay
2	Unpaid taxes	Government
3	Secured creditors	Collateralized bonds — backed by a specific asset (collateral) that can be liquidated if the issuer fails to make interest or principal payments
4	Unsecured creditors	Unsecured bonds, also called full faith and credit bonds — no collateral backing the issue
5	Junior unsecured creditors	Also known as subordinated debenture holders
6	Preferred stockholders	Owners (paid before common)
7	Common stockholders	Owners (paid last)

A bondholder is a type of creditor.

Wages/taxes vs. secured creditors

There can be some confusion about the order of unpaid wages and taxes versus secured creditors, depending on the source. Secured creditors have first rights to the collateral backing the loan. If the collateral is liquidated and doesn’t fully cover the loan balance, the liquidation priority above applies to the remaining unpaid amount.

To demonstrate this, assume a secured creditor is owed $1,000, and $100 of wages and $100 of taxes are outstanding. If the collateral backing the secured loan is liquidated for a total of $600, all goes to pay back the secured creditor, bringing their loan balance down to $400. Now, the rest of the company’s assets are liquidated for a total of $500. $100 goes to unpaid wages, $100 goes to unpaid taxes, and the remaining $300 goes to the secured creditor. This leaves the secured creditor with $100 unpaid.

The order of unpaid wages and taxes versus secured creditors is not a heavily tested concept. Questions on the priority of creditors (bondholders) versus equity holders (stockholders) are much more common on the exam.

Notes on each tier

Tier	Detail
Unsecured creditors	If a bond has no collateral backing its issue, it is unsecured. Because these bonds rank below secured creditors, they carry more risk than secured (collateralized) bonds.
Junior unsecured creditors (subordinated debentures)	Similar to regular debentures, except for where they fall in liquidation priority. For legal reasons you don’t need to focus on here, issuers are sometimes required to issue subordinated (junior) bonds. These bonds carry more risk than debentures because they rank lower in priority and have no collateral backing.
Stockholders	Preferred stockholders come first, and common stockholders fall last on the priority scale. Stockholders are owners of the company, and owners are paid only after creditors. When a company goes bankrupt, there is typically little to no money left for stockholders.

Bond quotes

Finance professionals often use shorthand when discussing securities. Markets move quickly, so quotes are designed to communicate information efficiently. A quote tells you the security’s current market value.
Sometimes quotes are simple, like they usually are with common stock:

ABC stock is trading at $50 per share.

Bond quotes are more complex at first:

The ABC corporate bond is trading at 95½.

They mean the bond is trading at $955. It’s faster to say:

Ninety five and a half (95½)

vs.

Nine hundred fifty-five dollars ($955)

Eighths rule

Corporate bonds are quoted in 1/8ths (eighths).

When you’re asked to identify a corporate bond quote, look for a large number followed by a fraction (like 95½). The fraction should be in eighths or reduced from eighths (for example, 4/8 would be reduced to ½). If the fraction isn’t in eighths (or reduced from eighths), it isn’t a valid corporate bond quote.

🔑 The “fraction-boot-scoot” method

To convert a fractional corporate bond quote into a dollar price, use Achievable’s “fraction-boot-scoot” method:

A corporate bond is quoted at 102⅛. What is its price?

Step 1: calculate the fraction 1/8 = 0.125

Step 2: boot the decimal back to the big number 102 + 0.125 = 102.125

Step 3: scoot the decimal once over to the right $1,021.25

Try one on your own:

A bond is quoted at 98¾. What is its price?

Answer = $987.50

Step 1: calculate the fraction 3/4 = 0.75

Step 2: boot the decimal back to the big number 98 + 0.75 = 98.75

Step 3: scoot the decimal once over to the right $987.50

Both quotes above are in eighths (or reduced from eighths).

Percentage of par and bond points

Corporate bond quotes are percentage of par quotes, meaning they’re stated as a percentage of the bond’s par value.

If a bond is quoted at 98, it’s trading at 98% of par. For a $1,000 par bond, 98% of par is $980.

If bonds only traded in $10 increments, there would be no need for fractions. But bonds trade at many different prices. When the price isn’t an even $10 increment, fractions are used. For example, a price of $987.50 corresponds to a quote of 98¾.

Definitions

Term	Definition	Example
Bond point	1 bond point = $10	A bond worth 98 bond points is worth $980 (98 × $10)

You may hear these described as “percentage of par” quotes or “bond point” quotes, but both refer to the bond’s market price.

The letter M in quotes

10M bond trading at 95½.

Here, M refers to the overall par value being quoted in $1,000 units (M is the Roman numeral for 1,000). So the quote translates to:

Ten $1,000 par bonds trading for $955 each

or

$10,000 par value bond trading for $9,550

To keep it simple, treat the M as a sizing label. Buying a 10M bond is the same as buying ten $1,000 par bonds.

Reading a full corporate bond quote

5M 10s ABC Debenture M’40 @ 95½

🔑 Breaking down every element:

Element	Meaning
5M	$5,000 par (or 5 $1,000 par bonds)
10s	The bond’s coupon (interest rate). Replace the “s” with ”%” → a 10% coupon bond
ABC Debenture	Long term unsecured bond from ABC Company
M’40	M’ indicates the maturity year — this bond matures in 2040
95½	Trading at $955

Interest math from this quote:

A 10% coupon on $1,000 par pays $100 of interest per year. This quote is for $5,000 par, so annual interest is $500 (10% x $5,000).

Zero coupon variant

You might also see a quote for a zero coupon bond. Instead of a number followed by “s,” it would appear as:

5M Zr ABC Debenture M’40 @ 95½

Municipal bond quotes

Many municipal bonds are quoted the same way corporate bonds are.
⚠️ If you’ve previously taken the Series 7, you might remember some municipal bonds use yield-based quotes. This is unlikely to be tested on this material.
📌 For test purposes, know that corporate and municipal bonds are quoted in terms of price (in 1/8ths).

Key points

Pros & cons of raising capital through debt

Pros:
- Don’t give up ownership
- Bondholders do not have voting rights
Cons:
- Must pay back borrowed funds plus interest
- Interest and principal payments can be significant

Pros & cons of raising capital through stock (equity)

Pros:
- No need to repay raised capital (money)
- No interest charged on raised capital
Cons:
- Giving up ownership of the company
- Many corporate decisions require shareholder approval

Liquidation priority

Unpaid wages
Unpaid taxes
Secured creditors
Unsecured creditors
Junior unsecured creditors
Preferred stockholders
Common stockholders

Creditors

Person or organization lending money
Bondholders are creditors

Corporate bond quotes

Provided in percentage of par format
Must be in eighths or reduced from eighths
M = $1,000 par unit when used in quotes
- 5M = $5,000 par bond
s = coupon (interest rate)
- 10s = 10% coupon
Zr = zero coupon bond
M’ = references maturity year
- M’40 = matures in the year 2040

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.

#	Source	Publisher
1	Bonds — coupon, maturity, price/yield, credit risk	SEC / Investor.gov
2	Securities Act 1933 — definition of security, issuer	Cornell LII (15 U.S.C. 77b)
3	EDGAR — 10-K/10-Q/8-K filings search	SEC
4	Achievable Series 65 — chapter 1.2.3	Achievable (course text)