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Sources of finance

Long-term finance – debt

Long-term debt (bonds), usually in the form of debentures or loan notes,
is frequently used as a source of long-term finance as an alternative to
equity.

A bond is a written acknowledgement of a debt by a company, normally
containing provisions as to payment of interest and the terms of
repayment of the principal.

Features:

 traded on stock markets

 usually denominated in blocks of $100 nominal value

 may be secured or unsecured (security may come in the form of a fixed charge
over specific assets or a floating charge over all assets or a category of assets)

 may be redeemable or irredeemable (if redeemable the repayment date will be
specified in the terms of the bond)

Illustrations and further practice

Now work through illustration 1 from Chapter 15

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