Why do companies issue bonds?
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Why do companies issue bonds? Would you rather buy a bond at a discount or a premium rate? Why or why not? What is the determining factor of whether a bond is sold at a discount, face, or premium?
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Companies issue bonds to finance operations. Most companies can borrow from banks, but direct borrowing from a bank as more complex and expensive than selling debt on the open market via a bond issue.
The costs involved in borrowing money directly from a bank are very high. Any CEO see banks as a lender of last resort because of the restrictive debt covenants that banks place on direct corporate loans.
Advantages
Bonds give higher interest rates compared to short-term investments.
Bonds are less risky compared to stocks.
Disadvantages
Selling bonds before they're due may result in a loss, a discount.
If the issuer of the bond declares ...
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