Which of the following statements regarding income bonds is/are true?
A) They appear similar to debt but are closer to equity.
B) They are generally issued after a reorganization.
C) The interest is tied to some level of the cash flow of the firm.
D) All of the above statements are true.

Question

Quizplus · Accepted Answer

Income bonds are a type of debt security, but the interest payments are contingent on the company having sufficient cash flow to make the payments. Therefore, it is tied to the cash flow of the firm, making statement C true. Income bonds are often issued after a reorganization, making statement B true as well. Because income bonds have characteristics of both debt and equity, statement A is also true. Therefore, all three statements are correct.

Which of the Following Statements Regarding Income Bonds Is/are True