Unit – II
SECURITY INVESTMENT
Meaning
Investment of money is made in a business with
the expectation of a profit to come through the
efforts of someone other than the investor, it is
considered a security.
security is a catch-all term for stocks,
bonds, mutual funds, exchange-traded funds or
other types of investments you can buy or sell.
BONDS
Bonds are investment securities where an investor
lends money to a company or a government for a
set period of time, in exchange for regular interest
payments.
REASON FOR ISSUEING BOND
1. Raising Capital:
The most straightforward reason for issuing bonds
is to raise money for various needs such as
financing ongoing operations, expanding into new
markets, or launching new products. Unlike equity
financing, issuing bonds allows a company to raise
capital without diluting ownership.
2. Lower Cost of Capital:
, Interest rates on bonds can be lower than the rate
of return demanded by equity investors, making it
a more cost-effective source of financing. The
interest payments on bonds are also tax-
deductible, further reducing the effective cost.
3. Capital Structure Optimization:
Companies strive for a balanced capital structure
that minimizes the weighted average cost of
capital (WACC). Issuing bonds can help a
company achieve an optimal mix of debt and
equity.
4. Financing Specific Projects:
Companies often issue bonds to finance specific
projects or acquisitions. Project-specific bonds can
sometimes offer better terms or tax benefits.
5. Refinancing Existing Debt:
Companies may issue new bonds at a lower
interest rate to pay off existing, higher-interest
debt. This process is known as refinancing and
can lead to substantial cost savings.
6. Financial Flexibility:
Unlike bank loans, which may come with restrictive
covenants, bonds can offer greater financial
flexibility. Companies can set the terms and
conditions that suit their needs and strategy.
7. Maturity Matching:
SECURITY INVESTMENT
Meaning
Investment of money is made in a business with
the expectation of a profit to come through the
efforts of someone other than the investor, it is
considered a security.
security is a catch-all term for stocks,
bonds, mutual funds, exchange-traded funds or
other types of investments you can buy or sell.
BONDS
Bonds are investment securities where an investor
lends money to a company or a government for a
set period of time, in exchange for regular interest
payments.
REASON FOR ISSUEING BOND
1. Raising Capital:
The most straightforward reason for issuing bonds
is to raise money for various needs such as
financing ongoing operations, expanding into new
markets, or launching new products. Unlike equity
financing, issuing bonds allows a company to raise
capital without diluting ownership.
2. Lower Cost of Capital:
, Interest rates on bonds can be lower than the rate
of return demanded by equity investors, making it
a more cost-effective source of financing. The
interest payments on bonds are also tax-
deductible, further reducing the effective cost.
3. Capital Structure Optimization:
Companies strive for a balanced capital structure
that minimizes the weighted average cost of
capital (WACC). Issuing bonds can help a
company achieve an optimal mix of debt and
equity.
4. Financing Specific Projects:
Companies often issue bonds to finance specific
projects or acquisitions. Project-specific bonds can
sometimes offer better terms or tax benefits.
5. Refinancing Existing Debt:
Companies may issue new bonds at a lower
interest rate to pay off existing, higher-interest
debt. This process is known as refinancing and
can lead to substantial cost savings.
6. Financial Flexibility:
Unlike bank loans, which may come with restrictive
covenants, bonds can offer greater financial
flexibility. Companies can set the terms and
conditions that suit their needs and strategy.
7. Maturity Matching:
