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Do you support General Motors choice to use bonds for financing or investment purposes? Why or...

Do you support General Motors choice to use bonds for financing or investment purposes? Why or why not? What benefits and risks do bonds present versus other forms of financing?

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Answer #1

Yes. I support General Motors choice of using bonds for financing and investment purposes. The main advantage of using a bond is that the amount of money that the company has to pay as interest is tax deductible. The company gets tax benefits on the interest paid on bonds to the bondholders. The interest rate on the bond is fixed and there are no changes in it unlike the equity market. The disadvantage of choosing bonds is that the company may have to face liquidity risk, credit risk, inflation risk etc. Thus, I support General Motors' decision.

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