ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Issuing bonds is one way for companies to raise money. A bond functions as a loan between an investor and a corporation. The investor agrees to give the corporation a certain amount of money for a specific period of time. In exchange, the investor receives periodic interest payments.

Detailed explanation-2: -Some of the disadvantages of bonds include interest rate fluctuations, market volatility, lower returns, and change in the issuer’s financial stability. The price of bonds is inversely proportional to the interest rate. If bond prices increase, interest rates decrease and vice-versa.

Detailed explanation-3: -Disadvantages of Corporate Bonds One major risk of corporate bonds is a credit risk. If the issuer goes out of business, the investor may not receive interest payments or get his or her principal back.

Detailed explanation-4: -Less burden. With equity financing, there is no loan to repay. The business doesn’t have to make a monthly loan payment which can be particularly important if the business doesn’t initially generate a profit. This in turn, gives you the freedom to channel more money into your growing business.