Bonds are a popular source of financing because
A)the relative cost of issuing debt is often lower than the cost of issuing equity.
B)financial analysts tend to downgrade a company that has raised large amounts of cash by frequent issues of stock.
C)a company having cash flow problems can postpone payment of interest to bondholders.
D)the bondholders can always convert their bonds into stock if they choose.

Question

Quizplus · Accepted Answer

Bonds have a fixed interest rate that a company agrees to pay to bondholders in exchange for the use of their funds. This fixed interest rate is typically lower than the cost of issuing equity, which involves selling shares of the company and giving up ownership and control. As a result, issuing bonds can be a cheaper source of financing for companies, making it a popular choice.

Bonds Are a Popular Source of Financing Because