Bonds payable

Last updated on 2024-09-13 12:06:31

Bonds payable refers to the debt that a company is obligated to pay after issuing bonds to raise funds, according to the terms of the bond agreement.

Definition: Bonds payable refer to the debt that a company must pay according to the bond contract after issuing bonds to raise funds. It represents a long-term liability of the company to the bondholders, usually including periodic interest payments and the repayment of principal at maturity.

Origin: The concept of bonds payable originated from the need for corporate financing. As early as the 19th century, companies began issuing bonds to raise large-scale funds to support their expansion and operations. With the development of financial markets, bonds have become an important tool for corporate financing.

Categories and Characteristics: Bonds payable can be divided into several types, including:

• Fixed-rate bonds: These bonds pay a fixed interest rate throughout the term, suitable for investors with low-risk preferences.
• Floating-rate bonds: The interest rate adjusts with market interest rates, suitable for investors sensitive to market interest rates.
• Convertible bonds: Holders can convert the bonds into the issuing company's stock under certain conditions, suitable for investors who wish to participate in the company's equity.

These bonds offer different risk and return combinations, meeting the needs of various investors.

Specific Cases:

• Case 1: A company issues a batch of fixed-rate bonds with an annual interest rate of 5% and a term of 10 years. Investors receive fixed interest income annually, and the company repays the principal at maturity. These bonds are suitable for investors seeking stable income.
• Case 2: Another company issues convertible bonds, allowing holders to convert them into the company's stock before maturity. If the company's stock price rises, investors can achieve higher returns through conversion. These bonds are suitable for investors who wish to switch flexibly between bonds and stocks.

Common Questions:

• Q: What is the difference between bonds payable and notes payable?
  A: Bonds payable are long-term funds raised by issuing bonds, while notes payable are usually short-term borrowing notes issued in daily operations.
• Q: What are the consequences if a company fails to pay interest on bonds payable?
  A: If a company fails to pay interest on time, it may be considered in default, leading to a downgrade in credit rating and even legal action.

The above content is a further interpretation by AI.Disclaimer