Unlike dividends on stock, a firm has a legal obligation to pay interest on bonds.

Name: Unlike dividends on stock, a firm has a legal obligation to pay interest on bonds.
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Question

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When a company issues bonds, it incurs a legal liability to pay interest on the bonds and to repay the principal amount at maturity. This obligation is enforceable through legal action, making it different from dividends on stock, which are not legally required to be paid.

Unlike Dividends on Stock, a Firm Has a Legal Obligation