Sources of Corporate Finance — Secretarial Practice STD 12 Commerce / Arts — Question

Definition:
According to Webster Dictionary, “a bond is an interest bearing certificate issued by a Government or business firm promising to pay the holder a specific sum at a specified date”.
A bond is thus-

• A formal contract to repay borrowed money with interest.
• Interest is payable at a fixed internal or on the maturity of the bond.
• A bond is a loan.
• The holder is a lender to the company.
• He gets a fixed rate of interest.

Features:
(i) Nature of finance:

• It is debt or loan finance.
• It provides long-term finance of 5 years, 10 years, 25 years, 50 years.

(ii) Status of investor:

• The bondholders are creditors.
• They are non-owners and hence, not entitled to participate in the general meetings.
• The bondholder has no right to vote.

(iii) Return on bonds:

• The bondholders get a fixed rate of interest.
• It is payable on maturity or at a regular interval.
• Interest is paid to the bondholder at a fixed rate.

(iv) Repayment:

• A bond is a formal contract to repay borrowed money.
• Bonds have a specific maturity date, on which the principal amount is repaid.