A bond is a debt instrument issued for a period of more than one year with the purpose of raising capital by borrowing. Bonds are sometimes called fixed income securities.
Corporate bonds are debt instruments because money is lent to a corporation. In taking money, the corporation issuing the bond promises interest (also called "coupon").
Corporate bonds, issued by a Corporation, are meant to raise the funds for the company’s expansion plans. Power point lecture slides of this topic:
The basic reasons for issuing bonds are:
- To raise capital for their business for investments
- To Reduce the Cost of Capital
- To Effect Tax Saving
- Long-Term Financing
- Avoid long-term financing from banks
- Efficiency of management
- Lower interest payments
- No Dilution of Stockholder's Equity
- Call options by the company
- Convertibility options by the company
Contributor Zulfiqar Hasan is a university teacher working as an Associate Professor (Finance). He has done his MBA from London School of Commerce, London, UK.