A disadvantage of bonds is
A)Bonds require payment of periodic interest
B)Bonds require payment of principal
C)Bonds can decrease return on equity
D)Bonds may not create financial leverage
E)All of these

Question

Quizplus · Accepted Answer

A) Bonds require payment of periodic interest, which is a cost to the issuer.
B) Bonds require payment of principal, which is a repayment of the borrowed amount.
C) Bonds can decrease return on equity because the interest paid on bonds is fixed and takes priority over dividends to shareholders.
D) Bonds may not create financial leverage because they do not increase the company's ownership equity. 
All three of these factors are disadvantages of bonds, making choice E the correct answer.

A Disadvantage of Bonds Is