ACCA Advanced Financial Management (AFM) Practice Exam 2026 – Comprehensive All-in-One Resource for Exam Success!

Corporate bonds are typically issued by a book-building procedure, which is a systematic way of generating interest in a new bond issuance, allowing underwriters to assess the demand for the bonds before setting the final issue price. In this process, potential investors indicate their interest in purchasing bonds at various price points, and the underwriters collect these indications to determine the optimal terms for the bond offering.

The book-building process has several advantages, including the ability to gather comprehensive market data, which helps in setting a competitive price for the bonds. It also facilitates the allocation of bonds based on demand, leading to a better understanding of investor sentiments and preferences regarding the issuer's creditworthiness and the bond's risk-return trade-off.

In contrast, some other methods of bond issuance, such as traditional auctions or direct negotiations, do not typically reflect the same level of market-driven pricing mechanisms. While those methods may be used in specific circumstances, they do not enjoy the same widespread applicability or efficiency as the book-building approach in the corporate bond market.