Question

As corporate bonds mature and become due for payment, it's common for the borrowing corporation to replace this debt with the issuance of new bonds.

True or False

Answer 1

True

Bonds are IOU with a lower cost as compared to Stocks or Loans from Banks. The Bond is an instrument of indebtedness of the Bond issuers to the investors or Bond Holders. Bonds provide Corporations with external source of finance to fund long term projects.

Bonds are negotiable, i.e,, the ownership of the instrument can be transferred in the secondary market. This makes Bonds highly liquid.

Bond Holders, being creditors, have priority over stock holders in the event of bankruptcy.

So, Bonds are more attractive as compared to stocks and loans from Banks. Hence, Corporations on maturity date, replace this debt with the issuance of new Bonds.