Which of the following statements regarding income bonds is 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 may appear similar to traditional debt because they promise to pay interest, but they are closer to equity in that they only pay interest if the issuing company has sufficient earnings. They are often issued after a company reorganizes, especially if it is coming out of bankruptcy, as a way to ease the financial burden while the company recovers. The interest payments on income bonds are indeed tied to the issuing company's cash flow, making them unique compared to more traditional bonds that require fixed interest payments regardless of the issuer's financial performance.

Which of the Following Statements Regarding Income Bonds Is True