A disadvantage of bonds is:
A) Bonds require payment of periodic interest.
B) Bonds require payment of par value at maturity.
C) Bonds can decrease return on equity.
D) Bond payments can be burdensome when income and cash flow are low.
E) All of these.

Question

Quizplus · Accepted Answer

All of the given options are disadvantages of bonds. Bonds require payment of periodic interest, which reduces the amount of funds available to the issuer for other purposes. The payment of par value at maturity may be difficult for the issuer if the bond proceeds were invested in projects with insufficient returns. Bonds can decrease the return on equity, especially if the company borrows too much and cannot generate enough profits to cover the interest and principal payments. Moreover, if a company's income and cash flow decrease, it may find it burdensome to make bond payments, resulting in default or bankruptcy.

A Disadvantage of Bonds Is