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

Question

Quizplus · Accepted Answer

Interest paid to bondholders is considered a business expense and is tax deductible for the company. Bond financing is considered debt financing rather than equity financing, so statement A is incorrect. Issuing new bonds does not dilute ownership in the firm, as bonds do not represent ownership; they represent debt that must be repaid to the bondholders. Therefore, statement B is also incorrect.

Which of These Statements About Corporate Bonds Is Correct