Which of these statements about corporate bonds is correct?
A)Interest paid to bondholders represents a tax deductible business expense.
B)Bonds provide equity financing.
C)Issuing new bonds dilutes the existing ownership in the firm.
D)Debenture bonds require assets pledged as collateral.

Question

Quizplus · Accepted Answer

Interest paid to bondholders is tax deductible for the corporation, making it an attractive form of financing for companies. Choice B is incorrect because bonds represent debt financing, not equity financing. Choice C is incorrect because issuing new bonds does not dilute existing ownership in the firm, as bondholders do not have ownership rights like shareholders. Choice D is incorrect because debenture bonds are unsecured, meaning there is no collateral pledged to back the bond.

Which of These Statements About Corporate Bonds Is Correct