Question

How would you describe a bond to a person who has no idea what a bond is? Include positive and negative advantages

Answer 1

Bond is a financial instruments. Bonds are issued by the companies and some times it may be by government nodel agency also. Bonds will bear the fixed rate of interest percentage to the bond holders. and interest on the bonds are normally paid in half yearly and in some times even yearly interest also is paid.

This is a purely debt instruments of the comapny and so interest paid is allowed for the deduction for the company and so-on the deductable for income tax also.

If we can say for positive of the bonds than ,

1. This is easy to issue in the market
2. Finance need of short term and long term will fulfill with the bonds
3. This is deductible for income tax
4. cheaper than equity finance

Negative :

1. We have to pay the interest on the bonds even we have losses
2. Interest rate risk i.e after the issue of the bonds market rate of interest become cheaper
3. Repayment and credit risk also there.